Buy now, pay later is the basis for how credit cards work. A higher credit score for credit card not only offers fast credit access but a variety of additional benefits as well, including reward points, savings, and cashback on your purchases. Regular and responsible credit card use is essential for experiencing the optimal benefits of credit cards. Hence, you should be careful to avoid these credit card mistakes as you begin the New Year:
Making a cash withdrawal with a credit card: Do you know withdrawing cash through a credit card attracts cash advances of up to 3.5% of the amount withdrawn and finance costs from the day of the withdrawal to the date of repayment? Depending on the credit card, interest charges might be as high as 49.36% annually. Hence, you can imagine how withdrawing cash from your credit card is capable of burning a hole in your pocket, especially when the repayment is not made for a prolonged period. So, you need to make sure that you repay the entire cash withdrawal as soon as you can.
Repeatedly repaying the minimum amount due: People who use credit cards but are unable to pay the entire amount of their bills on time frequently only pay the minimum amount required. There is a common misconception that only paying the minimum due amount avoids finance costs. In contrast, paying simply the minimal amount due would only spare you from being charged a late payment fee. Still, interest in the form of finance charges would be charged on the remaining balance of the credit card payment. Continuously paying only the minimal amount due could put you in debt since unpaid debt would keep accruing along with high financing costs that can later affect your credit score for credit card.
Try to pay off your credit card debt completely and on schedule: If you have trouble doing so, either think about making EMIs out of the total outstanding balance or have your large purchases converted into EMIs. You might also attempt shifting the outstanding balance to a credit card with a lower or no interest rate or applying for a personal loan to consolidate your debt with a lower interest rate.
Maintaining a credit utilization rate of more than 30%: Credit bureaus lower your HDFC credit card CIBIL score by a few points when you exceed this threshold because lenders and credit card companies view credit utilization percentages of over 30% as a sign of credit hungriness. Therefore, be careful to keep your credit score for credit card spending to no more than 30% of your available credit. If you frequently go above this limit, either ask the company that issues your credit card to raise it or apply for another credit card to raise your overall credit limit. As a result, your credit utilization ratio will decrease.
Failing to schedule credit card purchases according to the interest-free credit period: The interest-free period refers to the time between the date of a credit card transaction and the payment due date. Depending on the date of your credit card transaction and your card issuer, it can be anywhere between 20 and 52 days. As long as they are paid off on time or before the due date throughout this time, credit card transactions are exempt from interest charges, and your HDFC credit card CIBIL score won’t be affected. In other words, during this time, your card issuer will fund all purchases made with your card at no cost. Plan your card purchases, especially the larger ones, to provide you with the longest possible term of interest-free use.
Missing a payment: Late or missed payments for more than 30 days can significantly lower your credit score for a credit card. However, since a payment must be fully 30 days past due before it is recorded to the credit agencies, you won’t experience a decline in your credit score if it is only a few days late. However, you could be charged a late fee or penalty interest rate, which would increase your APR. To ensure you make payments on time, enable autopay.
Forgetting to review your billing statement: It’s crucial to ensure the transactions on your bill are accurate so you can stop scammers or reporting mistakes in their tracks. This way, your HDFC credit card CIBIL score also won’t get affected. You should, at the very least, check your monthly statement for mistakes. However, it’s good to practice reviewing your transactions a few times a week to make sure everything appears to be in order. It’s important to analyze charges as soon as they appear on your account so you can potentially identify fraud early and remedy any errors.
Taking out a cash advance: A cash advance might be one of the riskiest things you can do with your credit card. Interest begins to be charged on the amount of cash you withdraw immediately, and you will likely incur a cash advance fee.
Maxing out your credit card: It’s never a smart idea to use the majority or all of your allotted credit. Your credit score could be lowered by your excessive usage. Your credit usage rate is influenced by how often you use it, and as we just discussed, the lower your use, the better the score will be. You can call the credit card provider and request an increase in your credit if you routinely charge close to your limit each month and you have no trouble paying off your bill.
Constantly applying for new credit cards: A new inquiry is recorded on your credit report each time you ask for credit. The more inquiries there are, the greater risk you appear to lenders. You should only apply for credit as needed and ideally not more than once every six months.
Although a credit card is a valuable asset having a high credit score for a credit card further ensures you face zero rejection if you ever apply for a loan in the future; using it improperly can result in significant financial loss. For example, you need to pay high-interest rates by carrying a balance. Late fees will be applied when payments are missed. Your credit score for a credit card will suffer if you close a credit card. However, developing the habit of using your credit card properly is not difficult. This helps you save money while building credit and perhaps even benefit from some nice benefits along the road.
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