Use of a credit card incorrectly: 5 warning flags


For those who lack financial discipline, credit cards can be a source of severe risk. They can harm your financial health for a long time if they are handled improperly.

You may be using your credit card in the wrong way if you see any of these five indications.

Continuously remitting simply the bare minimum

If you merely pay the minimum amount required, you’ll save a lot of money on finance charges. If you pay just enough to avoid late fees and a ding to your credit score, you’ll save yourself some money. Your credit card bill will still have significant finance charges of 23 percent – 52 percent p.a. Credit card debts that aren’t paid back are subject to interest-free periods on new purchases until the total unpaid balance is paid off.

If you are unable to pay off your entire credit card debt, consider converting the unpaid portion into EMIs.

At ATMs, you can get cash using your credit card

Cash withdrawals made with credit cards are subject to fees of up to 3.5 percent of the amount withdrawn. In addition, card issuers charge finance charges of up to 52 percent per annum from the time of withdrawal to the time of repayment. As a result, aim to prevent cash withdrawals via credit cards as much as possible. If it becomes completely inevitable, make sure to reimburse the entire amount withdrawn as soon as possible. As a result, additional interest costs in the form of finance charges would be reduced.

Maintaining a credit utilization ratio (CUR) of over 30% at all times

CUR stands for the proportion of your overall credit limit that you have utilized. Because lenders typically perceive persons with a CUR of above 30% to be credit-hungry, credit bureaus may lower the credit score of those who are over the 30% credit card limit. As a result, keep your total credit card limit to less than 30% of your entire credit card limit.

Ignoring the expiration date of reward points

Customers who have accrued rewards points on their credit cards can redeem them for gift cards, air miles, and merchandise at chosen merchant outlets and online partners or by applying them to their outstanding card bills, depending on the program. As a result, credit card reward points expire within two to three years of being issued.

Declining an increase in your credit limit

Many credit cardholders are afraid of overspending and falling into a debt trap, therefore they avoid extending their credit card limit. As long as it’s used correctly, it can help you better your financial situation. As a result, anytime the card issuer offers to increase your credit limit, you should consider it.

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