A credit card is a valuable asset, but if you are not careful with how you use it, it can cause a lot of harm. If you are a first-time credit card user, you are more likely to make mistakes that will harm your credit score. We’ve compiled a list of the most common credit card blunders to help you avoid them and get the most out of your credit cards.
Getting Credit Card Charged-off
Account delinquency occurs when an account falls so far past due that the lender sells the debt to a collection agency after writing off the total as a loss on his account. Missed payments usually result in the card being charged off after six months. This is one of the most serious credit card blunders you can make, as it will influence your credit report for seven years and your ability to obtain credit cards and loans in the future.
Closing Your Credit Card
The duration of credit history is affected when a credit card is closed. Every time you apply for a new credit card, your credit history is evaluated. As a result, closing your credit cards, especially the older ones, is not recommended.
Frequently Applying For Credit Cards
Another common credit card blunder is applying for many credit card applications at the same time owing to a lack of expertise. Few people in the UAE are aware that applying for a credit card multiple times lowers your credit score by ten points. Every credit card application should be separated by a month or two. The bigger the number of enquiries you receive in a short period of time, the more risky you appear to lenders. Applying for credit cards too frequently has a negative impact on your credit score.
Maxing Out Your Credit Card
It is not a smart habit to use all or the majority of your allotted credit limit. When determining an applicant’s financial creditworthiness, the term “utilization rate” is frequently employed. It is the rate at which a person uses the credit limit that has been assigned to him or her. The lower the use, the higher the trustworthiness. Your credit score or AECB Score can be affected by a greater utilization rate. You might request a credit limit increase from your bank if you believe your needs have increased and you can easily pay it back.
Cash Advances
Taking out a cash advance is probably one of the riskiest things you can do with your credit card. It requires quick accrual of interest on the amount of cash withdrawn, with no grace period. A separate cash advance fee, in addition to the accrued interest, will have to be paid, which could be roughly 5-10% of the withdrawal amount. Cash advance repayment can be problematic if you aren’t prepared to deal with the high fees as well as the principal amount.
Not Knowing the Interest, Fee, and Other Charges
Lack of knowledge about the product you use hurts you in two ways: first, you can’t use it to its full potential and get the most benefit; second, you don’t use it correctly and make mistakes that cause damage. A credit card is essentially the same as any other bank-issued product. It’s critical to understand all of your card’s charges, fees, and interest rates. Otherwise, you risk making rash decisions and payment plans that negatively impact your credit score.
Ignoring Billing Statement
In the midst of our daily routine, we occasionally overlook critical details that we later regret. It’s critical to review your credit card’s monthly billing statement to ensure you’re aware of the correct due date and amount to avoid any payment delays or discrepancies. Even the tiniest mistake can result in significant consequences. You can also miss out on critical information about changes to your credit card rules. If your account is used fraudulently or if inappropriate charges are levied, you may receive notification. Check your billing statement as soon as you receive it to be proactive and avoid headaches.
Missing Payments
If you’re 30 days past due on a payment, it can have a significant impact on your credit score. This usually occurs when you are drowning in debt or neglect to make a payment. A single missing payment can lower your AECB score by up to 100 points, or even more if it occurs repeatedly.
Paying only monthly minimum due
Paying simply the minimal amount due is one of the most common credit card blunders. very There is a misconception about the amount stated in the statement. Some people feel that paying the minimal payment is equivalent to paying an installment for the full amount owed. Some people believe that if they only pay the minimum payment, there would be no interest or late fees, and their credit score will be unaffected. This is completely untrue. Credit card companies are aware that unfavorable circumstances may arise, resulting in non-payment of full balances within the interest-free payback period. As a result, the concept of a minimum due was established to assist clients in repaying their balances. The issuing body will continue to levy fees, which must be paid to the consumer for delaying payment.
Carrying a balance month to month
The first thing you should avoid is carrying a balance month after month. Once you’ve made a purchase with your credit card, you have 30/45 days (or as determined by the bank) to pay it off without incurring interest. When you miss a payment deadline, it not only hurts your credit score, but it also costs you money in the form of interest and a late payment fee.
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