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Three Common Credit Card Mistakes You Should Never Commit

25th April 2011

A credit card is a powerful tool which can greatly impact your finances. Bear in mind that this plastic was handed out to you by the bank to authorize you to use their funds. Unfortunately for many, once they get a-hold of these cards, they end up swiping it wantonly. Perhaps they view their credit limits as effectively their money already, when in fact it isn't, thus burying them in mountains of debts. So to avoid such a situation from happening, it is crucial that you know the most common credit card mistakes to steer clear of.

1. Frequently going over and above your credit limit

Your credit limit determines the maximum amount you can borrow from the bank. But whether or not you have a sizeable credit limit doesn't mean you can just go ahead and max it out. Sure, you frequently hear this piece of advice. But do you really know the reasons why exceeding your credit limit can be detrimental to your finances in the long run? Here's why:

  • Penalty fees, one on top of the other, will be charged to your account every single time you go beyond the capped credit amount. And the worst part is that many times these fees are percentages derived from the exceeded amount on top of a fixed penalty fee. Sure percentage fee charges might not even be that noticeable if you only charged beyond, say, £10. But what if it's more £100, then the charges will surely add up.
  • A good credit score can just as easily be ruined by a few instances of over-the-limit records on your account. Bear in mind that card issuers report your card use to credit bureaus randomly. And if it so happens that one instance of over-the-limit transaction was the one reported, then that's going to cost you your good credit standing.
  • It's hard enough to maintain a good credit standing, but building one from scratch is in fact even more so. So if you have just recently obtained a credit card in the hopes of finally having a credit record, then it would do you well to not exceed your set credit limit. This is particularly crucial if what you've been granted is a relatively small amount. Bear in mind that credit card use reflects your handling of finances. If you happen to spoil this by going over-the-limit, then you're only showing the lenders that you're incapable of properly handling even a small amount that they extend to you.
  • Of course, once you have instances of over-the-limit transactions on your credit card, then you will surely find it hard to obtain a different card from another financial institution.

2. Settling only the required minimum payment amount every single month

Paying balances in full even before a new billing cycle rolls out is the best way to keep a credit card account in good standing. However, not everyone can afford this. In fact, many just end up paying the minimum required amount. Of course, if considerable balances are left out because you only pay the minimum, then of course, you can expect your next month's bill to bear those interests and finance charges. So whenever you can, set aside a bigger amount for credit card payments. Or if you can't, then make sure to curb your credit card use to a minimum. This way, charges and interests won't pile up.

3. Obtaining the wrong type of credit card that won't answer your specific needs

Various credit card products have been made available to cater to as many different and unique client needs as possible. However, so many folks still end up acquiring a credit card that just doesn't match their needs. These tips should help you figure out the right credit card product to get:

  • If you are absolutely sure you will be able to pay off your balance in full every single month, then you should consider applying for credit cards with cashback guarantees. Such cards will enable you to earn tax-free cold hard cash as incentive every single time you use the plastic for purchases. Again, only go for these cards if you can wholly pay off balances or else the cashback will be cancelled out by the monthly interests.
  • If you frequently travel by plane, then you might well benefit from air miles promotions forwarded by credit card companies. Points go toward air miles every single time you use the credit card. This way, the next time you fly, you won't have to pay anymore and instead just use the accumulated air miles to purchase plane tickets.

Plastic can shape up your finances but only if you use it smartly and responsibly. So heed these tips and you will surely improve your credit card handling skills.