Credit cards have made transactions incredibly convenient, as users can choose to pay later for any purchase. Such flexibility ensures that one’s purchasing power does not depend on one’s bank balance. Today, several credit card companies offer attractive benefits on purchases, including cashback and reward points, and have emerged as highly lucrative for users. However, one needs to exercise some caution while using credit cards. So, here are some credit-card habits to avoid:
Applying for many cards at once
Users often have multiple credit cards to split large expenses so that there is sufficient credit available for each card. However, applying for multiple credit cards successively can trigger multiple inquiries, which can negatively impact the credit card holder. So, it is best to avoid applying for multiple credit cards simultaneously.
Not making timely payments
Delaying credit card payments repeatedly can affect one’s credit score, which can cause problems with securing loans. In most cases, banks either reject loans or charge high-interest rates for those with poor credit scores. Many employers also reject candidates with a negative credit report. Paying credit card bills on time can help improve one’s credit score.
Frequently paying through EMIs
Equated monthly installments (EMI) allow users to repay credit card debts flexibly in parts over a specific time frame. Most credit card companies offer EMI options for users’ convenience. However, EMIs entail monthly interest in addition to the principal amount, leading to overspending. The best bet is to apply for an EMI only in case of large expenses.
Closing a credit card
Closing a credit card can affect one’s credit history, especially if the card is old. For example, if one owns two credit cards with credit histories of three and four years, the total credit history comes to seven years. But closing the card with four years of credit history would reduce this total to three years. So, it is best to avoid closing credit cards.
Not having sufficient credit available
Sometimes, one may have to use the entire credit limit of a card for large expenditures. However, using the entire credit limit frequently can reduce one’s credit utilization rate, which is the percentage of credit used out of the total credit provided to the user. Hence, one should avoid using over 30% of the available credit each month.