Credit cards are pocket-sized plastic cards that allow you to make transactions across a wide variety of shopping and personal outlets. While using your credit card, you are only going into a debt agreement with the bank issuing the card. You will have to pay off the amount charged to your card at a fixed date with interest.
India alone harbors over 20 million credit card users in total. However, it is common for users to forget about the consequences of not using their credit cards with caution. Not only does credit card has the risk of being overspent it can also increase your debt to a very high limit. Being well informed about the do’s and don’ts of using your credit card can help you use your credit card optimally thus reducing the risk of overspending. Here are some of the mistakes you should avoid when you apply for a credit card.
#1. Applying for too many cards:
Having multiple credit cards significantly affects your credit score and brings it down. Applying for multiple cards at a short period will depict a risk borrowing and credit hungry behavior. Such practices are not seen positively, and your credit card application will be rejected by the issuing bank. A good practice is to go through the terms of the bank you wish to apply at for a card to understand the necessary waiting time before you can apply for another card.
#2. Not checking your Credit Score:
Credit card companies will look into your credit score before accepting your credit card application. Similar to the process of applying for a loan, your credit score will show your credibility as a borrower. Having a high credit score opens up many opportunities for you such as lower interest rates, balance transfer option and much more. Having a look at your credit score before applying for a credit card will ensure your card application is not rejected.
#3. Not paying previous bills on time:
Letting your credit card bills accumulate one after the other for months will affect your chances when you apply for a credit card at the bank. Not only will it hamper your credit score by bringing it down, but late payments will also attract hefty fees and higher interest rates. Delay or a skip in your payment will leave a bad impression of you on the credit card issuer. A good practice is to have a payment schedule and following it till the end.
#4. Using the entire Card Limit:
Your card usage tells a lot about your spending habits, while it is not wrong to use your credit card to make purchases. You should keep in mind that you are not using your card for frequent purchases. Using more than 50 percentage of your card limit gives a negative view about your spending habits, and banks will avoid accepting your card application.
#5. Taking Cash Advances:
Withdrawing money from the ATM using your credit card sums up as a cash advance. Such advances can be seen as small cash loans from the creditor, the bank to you. While such advances act as a savior when you are in an emergency and need cash instantly, but you should remember that such advances will carry a higher interest rate and an equally high transaction fee.
A credit card may give you immense monetary freedom, but you should not be carried away with it. The points mentioned above will help you use your credit card responsibly.