We all know the practical uses of credit cards. However, it takes great discipline to use them responsibly in order to buy only essential things, obtain rewards and strengthen your credit worthiness. Many of us fall into really bad habits when using credit cards.
To learn how you develop the right way to use credit cards, avoid these five bad habits often committed by many individuals:
1. Out-of-Control Charging
Many credit cards user get carried away and charge mindlessly in order to gain as many rewards points as possible. The key principle is responsible charging; as long as you do, a credit card can be your best friend. That is, charge only what you can truly afford to pay, monitor your credit use ratio and pays your debts promptly. People often become complacent and forget how much debt they are raking up within a month.
What steps to take: Create your personal budget and follow strictly. With a budget, you have a clear basis upon which you will make your purchases; so that when the monthly statement comes, you can fully pay the required amount. To give an example, if your allotted budget for your regular weekend trips has been spent, have a picnic in your backyard instead.
2. Only paying the minimum
The rule to observe for credit cards is to pay above the minimum since this prevents accumulating big interest payments in addition to our expenses. However, sometimes we incur a few big expenditures at one time and we cannot pay our dues completely.
What steps to take: in case you cannot pay off your card fully after several months, set a definite time in which you will reset your payment schedule back to normal. (You can calculate the time this will take you by using the credit card payoff calculator application.) Aside from that, your main concern is to pay your statement promptly; and pay the least amount required. And while you are paying off excess purchases, avoid piling up what you need to pay by making more new charges.
3. Missing a payment
If you fail to pay your statement fully, you are adding to your interest payments on your unpaid statement. But the point here is that if you fail to pay or pay late, you will incur a late payment. For example, if your card company charges you a $35 late fee and you fail to pay three late statements in a year, you will crank up over $100 just in fees for late payment, plus other interest accruals. (Moreover, missing payments will negatively affect your credit — more to follow.)
What steps to take: Missing a payment can be remedied by setting up a reminder on your smartphone or by having an automatic payment arrangement. But if your real concern is not having the funds, visit your card company and ask for a payment schedule within which your may pay off the balance.
4. Ignoring your rewards
Some credit cards offer rewards for travel, cash returns or others which can be quite attractive for many people. This is particularly applicable for cards with annual fees. In general, if you do not use your points or your account is inactive, you may lose your rewards points. Learn what the fine print says about your card or you may miss out on big rewards.
What steps to take: As suggested, become familiar with the limitations of your card and then strictly observe the necessary requirements on rewards. Perhaps you could utilize your cash return to cover your Christmas shopping needs or take care of travel costs during your vacation.
5. Learn how your card usage can affect your credit
Some people may consider themselves responsible credit card user, not realizing that even if they pay their statement promptly and fully most of the time that they are not aware of some problems. It is crucial to review your credit profile and regularly.
What steps to take: Always review your credit statements every year at least. Get free report copies from the three primary major credit offices — TransUnion, Equifax and Experian — every year at this site: AnnualCreditReport.com. Check out any errors that might be affecting your scores and submit any problems. (We can help you do it here.) You may likewise find a photo of your credit reports at Credit.com. Aside from two free credit scores, which are regularly updated every two weeks, you are also provided an evaluation of things you can do to improve your scores or how to remain on course.
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