6 mistakes you should avoid while using your Credit Card

Plastic money has largely taken over paper money, and the use of debit cards and credit cards has become common today. Both debit and credit cards work in an almost similar manner in terms of transactions, but they have some fundamental differences. While a debit card allows you to spend from your savings bank account, a credit card works on the principle of instant purchase and future payment principle.

You can use your credit card to shop and pay at merchant outlets, make online payments, and withdraw cash from ATMs. However, unlike a debit card, this money is not debited from your savings bank account. Instead, it is given to you as a loan by your credit card provider from a fixed credit limit. You can repay this loan within an interest-free period of up to 50 days from the date of the transaction.

Additionally, you can earn reward points, cashback, and discount vouchers for the purchases you make through your credit card. These reward points are redeemable for attractive gifts and shopping vouchers from the credit card provider.

Why it is crucial to use your credit card wisely

Although a credit card has many advantages, it’s imperative to use it wisely. When used properly, credit cards can be a very powerful financial tool. It can help you boost your credit score and even tackle a financial emergency without hassles.

However, many people fail to use their credit cards with caution and end up ruining their finances. Knowingly or unknowingly, any misuse of your credit card can come back to haunt you in a big way.

Common credit card mistakes to avoid

To prevent the misuse of your credit card, you must know how to use it. So, here are six common credit card mistakes you should avoid at all costs:

Not paying your credit card bills on time

It’s never a good idea to miss your credit card due date. Doing so can hurt you a lot. All credit card issuers allow an interest-free period of up to 48 days on your total spends in one billing cycle. Depending on your billing cycle, you are required to clear your dues within a specific date of every month.

Although you can pay your credit card bill even after the due date, you will start incurring interest charges on your outstanding amount on a daily basis. The interest rates applicable on credit card dues are usually very high. Moreover, missing your credit card payments can also hurt your credit score and hamper your chances of getting a loan in the future.

Only paying the minimum amount due

Do you make an effort to read your credit card statement thoroughly? If you do, you will find two types of outstanding amounts mentioned on it: total amount due and minimum amount due. Credit card issuers make it convenient for cardholders to repay their dues by allowing minimum payments. However, this is not recommended.

Why? Because when you pay only the minimum due amount, the remaining balance is carried forward to your next month’s billing cycle, and interest is charged on it as per the applicable interest rate. And when you have an unpaid balance on your credit card, even the new transactions start attracting interest charges from day one.

Neglecting to review your credit card statements

As mentioned above, you should always read your credit card statement thoroughly before making the payment. It’s crucial to check that all transactions mentioned in the statement are accurate. This will allow you to intimate your credit card provider if there’s an incorrect or fraudulent transaction on your credit card.

Also, credit cards attract several hidden charges, such as interest charges, finance charges, late payment fees, annual fees, etc. If you notice any such charges in your credit card statement and feel they are unjustified, you can ask your credit card provider to waive them.

Withdrawing cash often using your credit card 

Although your credit card allows you to withdraw cash from an ATM, you should not use this facility unless there is an emergency. It’s because credit card issuers levy hefty interest rates on cash advances, and in some banks the interest starts accruing as soon as you withdraw the cash.

Moreover, when you withdraw cash using your credit card, your interest-free period becomes void, and you start accruing interest even on your new transactions right from the very first day. This way, your debt amount keeps rising, and you may end up paying a hefty bill in the end.

Not maintaining an appropriate credit utilisation ratio

As you know, your credit score depends on several factors, such as your monthly income, credit history, active loan accounts, and credit utilisation ratio. A variation in any of these parameters can damage your credit score significantly.

So, it’s crucial to maintain an appropriate credit utilisation ratio while using your credit card. This means you should avoid using your credit card up to its credit limit. Ideally, try to maintain a credit utilisation ratio of 50% or less. 

Getting a credit card that doesn’t meet your needs

Several banks and non-banking financial companies (NBFCs) offer credit cards in India. It’s crucial to choose the right credit card. You should carefully evaluate a credit card's terms, conditions, charges, features, and benefits before applying for it.

For example, if you’re a frequent traveller, use a credit card that provides additional benefits for booking flight tickets and hotel accommodations. You can also keep multiple credit cards and juggle your payments among them to enjoy maximum benefits. You could even look for a credit card with a balance transfer facility so that you can transfer your outstanding balance from other credit cards at lower interest rates.

If you get yourself an IDFC FIRST Bank Credit Card, you get to enjoy benefits such as zero annual charges, up to 10x reward points on your spending, and interest-free cash withdrawal!

Conclusion

Although credit cards are incredibly convenient, you need to use them smartly. Avoid the mistakes listed above to prevent unnecessary debts and financial damage. Above all, do not neglect to choose the right credit card that matches your requirements.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.