Apart from being convenient, credit cards play a vital role when it comes to creating a good financial profile. If you use credit cards responsibly, selectively, and judiciously, you will find it easy to build good credit, something that you will need when making large purchases.
In addition, almost all credit cards offer amazing opportunities for their holders to save money and enjoy some perks and benefits such as cash-back points and frequent flier miles. However, enjoying these benefits does not mean that credit cards do not come with some cons that holders need to look out for.
If you use credit cards without discretion, excessively, or carelessly, you will likely find yourself in a situation where you have damaged your credit score. This can leave you in a lot of debt. Here are common mistakes people make with credit cards and how to avoid them;
Applying for Several Cards At Once
Even though you might not be hit when you apply for a credit card, you should be aware of something known as a hard inquiry. This happens when a card issuer pulls your credit to determine whether you qualify for credit or not. This is also known as a hard pull.
But how does applying for a credit card affect your credit score? Well, a hard pull will remain on your credit report for about two years. Now, imagine applying for several credit cards at once. You will have several hard pulls at the same time.
A hard pull has a negative effect on your credit score. This is because every new application represents a riskier situation for the card issuer. This will end up lowering your credit score. To avoid this, do not apply for several credit cards at the same time.
Using Credit Cards Too Often
You might be tempted to use your credit cards for every purchase that you make in a month. This is a mistake and will just end up racking up your debt. For instance, make sure that purchases such as clothing, household items, and groceries are not made with your credit card.
If you are making purchases that fall within your budget, then do not use your credit card. This might lead you to make more interest payments.
Avoiding this mistake is easy, just make sure that you are using your cards only when it is necessary to improve your relationship with credit cards.
Failure to Compare Different Credit Cards
Some people apply for a credit card without even looking at what the issuer is giving them. In addition, they do not look at the other options they might have from other issuers, something that might end up costing them a lot.
The first thing when applying for a credit card is to make sure that you have checked to see if the card you are getting meets all your requirements. Your current credit and credit score play a part in determining the kind of credit you qualify for.
In addition, check your payment and control your spending. These two also play a part in determining your interest rate and credit limit. Checking these things out is important in helping you understand what you qualify for.
Reaching Your Credit Limit
Even though it is always good to make sure that you have paid your credit limit in full, it might be challenging at times. One of the main reasons for getting a credit card is to achieve financial flexibility and be able to make large purchases.
However, should you reach your credit limit? This is a mistake most people make with their credit cards. If you must carry a balance, then make sure that you first understand your credit limit and make plans to make the payment.
To avoid this, you need to respect the maximum borrowing limit that your issuer has provided you with. Even though you can reach your credit card limit, try as much as you can to avoid using everything allocated to you.
Carrying Balances Forward
Responsible credit card holders understand that they only need to use their credit cards if they can pay the entire balance when it is due. However, some people think that carrying a balance helps them build good credit.
This is not true. The fact is that you are better placed if you have the lowest balance possible. You are at your best in a situation where you have a zero balance. If you carry balances forward, you will negatively affect your credit utilization ratio.
In addition, carrying balances forward attracts higher interests when it comes to your payments. To avoid this mistake, make sure that you use the money that you can afford to pay. Do not carry any balances forward.
Avoiding these mistakes will play a vital role in providing you with financial flexibility and improving your credit score.