Swipe Smart: Avoiding Costly Credit Card Mistakes

Credit cards can offer a valuable opportunity for increasing CIBIL score and gaining access to credit in the form of instant purchases. Not only do they come with a range of benefits such as cashback, reward points, and discounts, but they can also significantly enhance your creditworthiness. 

However, despite their potential advantages, credit cards are often misused by some users, who unknowingly make costly mistakes that can impact their financial well-being. It’s crucial to be aware of these mistakes and avoid them to prevent falling into debt or negatively affecting your credit score. In this article, we’ll discuss some of the most common credit card mistakes that you must steer clear of to keep your finances on track.

Credit Card Mistakes You Should Avoid

1. Not Checking Your Annual Credit

It’s easy to assume that your credit score is in good shape if you’ve had a good credit history and haven’t encountered any issues when applying for loans in the past. However, it’s important to remember that errors can occur on your credit report at any time, and these mistakes can be detrimental to your credit score and impact your ability to access credit in the future. 

These errors can lead to higher interest rates on loans or even loan rejections, which can cause financial stress and frustration. To avoid these issues, it’s crucial to regularly check your credit report every few months and review it for any inaccuracies or errors.

2. Only Paying the Minimum Balance Each Month

While it may seem convenient to pay only the minimum amount due on your credit card, it can actually cause more harm than good. This is because interest charges are levied on the unpaid balance, leading to mounting debt that can spiral out of control. Additionally, any new transactions on the card will also accrue interest charges from day one if there is an unpaid balance. To avoid these pitfalls, it’s essential to pay your credit card dues in full and on time. If you’re unable to pay the total due, it’s best to pay off as much of the balance as possible to avoid unnecessary interest charges.

3. Making a Late Payment

It’s essential to keep track of your credit card due date to avoid hefty penalties that can be levied for missed payments. Depending on the card issuer and the amount outstanding, these penalties can be as high as ₹ 900. To avoid this, it’s recommended to set up a Standing Instruction or auto-debit mandate with your bank to ensure that payments are made on time. 

4. Using a Credit Card for Everyday Items

Using a credit card for everyday items can be a convenient way to make purchases, but it’s important to use it wisely. While credit cards offer a range of benefits such as cashback, reward points, and discounts, it’s easy to overspend and accumulate debt if you’re not careful. To avoid this, it’s important to set a budget and stick to it, only using your credit card for necessary purchases within your means. 

5. Buying something because it’s a “Good Deal”

It’s easy to be tempted by a good deal and make impulsive purchases that were never part of your plan. However, it’s important to remember that the discounted price doesn’t necessarily mean you’re getting a good value. For example, if a blender is normally priced at ₹2000 but is on sale for ₹1600, you might feel compelled to buy it simply because it’s a great deal, even if you never intended to purchase a blender in the first place. To avoid falling into this trap, it’s crucial to focus on the amount you’re spending rather than the amount you’re saving. By doing so, you can make more informed and intentional purchase decisions and avoid overspending on items that you don’t actually need.

6. Closing a Credit Card

Having multiple credit cards can be a smart financial move, provided you use them responsibly. In fact, it can even help to improve your credit score by lowering your credit utilization ratio and increasing the average length of your credit history. However, it’s important to be mindful of how many credit cards you have and to keep them well-maintained. Closing a credit card, especially your oldest one, can have a negative impact on your credit score by reducing the average length of your credit history and increasing your credit utilization ratio. Therefore, it’s important to use credit cards wisely and keep them open for as long as possible to maintain a healthy credit score.

7. Applying for Too Many Credit Cards Within a Short Period of Time

It’s important to be cautious when applying for a credit card as it can impact your credit score. Each application can result in a slight decrease in your score, and if you apply for multiple cards in a short period, potential lenders may become suspicious and reject your applications. To avoid this, it’s advisable to apply for a new credit card only when needed and to apply for one card at a time. This approach can help you maintain a healthy credit score while also increasing your chances of being approved for the card you need.