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26 FEBRUARY, 2020
In recent times, India has witnessed an incredible increase in the number of people using credit cards. According to an RBI data report, the credit cards in circulation in India touched 50 million during the month of May’19.
When used wisely, they not only help build a strong credit score but also keep you out of debt. However, they can cause several financial risks when used negligently. If you plan on getting yourself a credit card, here are some mistakes that you must avoid as a new or regular user.
Making minimum payments
While the credit card issuers allow minimum payments in order to make it easy to repay your balance, do not make it a habit. Making minimum payments on your credit card will lead to an increase in the amount of time taken to clear off your debt. It will also increase the amounted interest as part of your credit card. Thus, you should essentially focus on fulfilling a maximum of your credit card repayments each month.
Delay in payments
Missing out or delay in payments that are due will lead to penalties of late charges. It can also affect your credit score. This can pose to be a big issue when seeking other financing options such as loans or making purchases. You can keep a due date reminder that notifies you when you must make payments.
Giving your credit card to another individual
Avoid giving your credit card or the details of your card to friends and family. Instead, you can avail of an add-on credit card that can be handed over to your family members or friends. Add-on credit cards act as supplementary cards and they come with spending limits that are decided by the issuers or the banks. This helps you avoid the risk of over spending or misuse.
Ignoring your billing statement
It is a common practice to ignore billing statements. However, doing this could lead you to miss out on important announcements. The billing statement helps you keep a track of all the expenditures and charges made from your account.
Letting your credit card charge off
Charge-off means that you are unable to pay off the debt. The charge-off has a negative impact on your credit score. As mentioned above, this can affect your ability to avail other types of financial options such as loans and or new credit cards in the future.
Delay in reporting of credit card loss
The longer you take to report about your loss of credit card, the greater the chances of misuse of your card. Hence, it is important that you report the loss of credit card as soon as possible to avoid fraudulent usage.
Exceeding the credit card-spend limits
It is not advisable to exceed the limit on your credit card-spends. Going overboard will lead to the incurrence of additional fees and interest on penalties and also the occurrence of a gradual spike in debt.
Cancel your credit card
If you have multiple credit cards and wish to cancel a few, do it with caution. Cancelling your credit card can have a negative effect on your credit score, which will make it difficult for you to take new loans. Even in the case of sanctioned loans, you may incur a higher interest amount.
Applying for multiple credit cards
Trying to apply for multiple new credit cards in a small period of time will lead to an increase in suspicion among your lenders. This can also lower your credit score.
Not clearly reading the terms and conditions
Always make sure to know the terms of your credit card as this helps in reducing your costs. Knowing the terms can help you know how your credit card company will handle late payments in order to avoid it. Do check the terms at least once in a year.
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