Bad Credit

Do you often use your credit card? Here are seven habits that can ruin you

Dubai: Credit cards are a great way to build up credit and pay for expenses, but when misused, they can hurt your credit score and cost a lot of extra money.

Carry a balance and pay high interest charges. Miss a payment and incur late fees. Close a credit card and save your credit score. The costs add up quickly.

Not sure if you have a bad credit card habit? 4 questions to ask yourself

If you’re not sure if you have a bad credit card habit, here are four questions to ask yourself to find out. If the answer to any of the questions below is yes, you are headed for a pile of credit card debt.

1. Do you pay interest only or minimum payments when you send your credit card payment?
2. Have you ever paid your credit card late because you didn’t have the money for the payment?
3. Do you use your credit card when you don’t have enough money?
4. When your issuer increases your credit limit, do you spend more because you can?

Here are some common credit card mistakes you might make and how you can avoid them. Credit card users should watch out for these seven bad credit card habits:

1. Use credit cards only for rewards

Credit card issuing authorities try to entice customers with various rewards programs to maximize credit card usage.

However, cardholders should exercise caution and only use the card if they need particular products or services. Let’s say you buy unnecessary things to earn more and more reward points.

You will then end up buying even more useless things just to use the reward points before they are expired when you find that there are no useful things to buy in the rewards catalog.

As business magnet and investor Warren Buffet said, “If you buy things you don’t need, soon you’ll have to sell the things you need.”

2. Carry a balance from month to month

One of the biggest credit score myths is that keeping a balance on your credit card improves your credit.

In fact, a global survey indicated that 22% of people carried a balance believing it would boost their credit score. In reality, carrying a balance from month to month hurts your credit score and costs you money.

If you have a balance, you will have a higher credit utilization rate, which is the amount of your debt relative to your available credit.

Experts agree that the lower your utilization rate, the better. One study found that “high achievers”—consumers with an average credit score of 800—use on average only 7% of their credit limit.

Carrying a balance can also be expensive due to interest charges. While a cashback card can help you save money on day-to-day expenses, all of that savings is for naught if you’re paying interest.

One of the biggest credit score myths is that keeping a balance on your credit card improves your credit.

3. Overspending on indulgences

Credit cards make shopping easier because cardholders don’t have to endure the pain of going to a bank or an ATM to withdraw and spend money.

Plus, the card can be used to buy something you don’t have enough cash on hand for and rely on future earnings to pay the bill. You should then only opt for the purchase if it is necessary.

Overspending on indulgences is a bad habit, which can cause you to put off credit card payments and, if left unchecked, can not only hurt your credit score, but can ultimately put you out of business. .

So, always remember that credit cards should only be used for emergencies and not for luxury purchases.

4. Postponement of card payments

Although you should always make at least the minimum payments, it is not advisable to pay only the minimum due.

Banks offer options for making minimum partial payments that often mislead cardholders into thinking it’s okay not to pay the full bill amount.

But remember that credit cards have interest rate caps. A partial payment may save you from late payment penalties, but it will still incur interest rates until you pay off your balance.

Only paying the minimum can add months or even years to the time it takes you to pay off the debt. So only spend that amount with your card, which you can pay no later than the bill payment due date.

Have a payment plan in place before taking on larger expenses and always make regular, on-time payments for your balance.

Credit card

Although you should always make at least the minimum payments, it is not advisable to pay only the minimum due.

5. Missing a payment

Late or missed payments can seriously hurt your credit score if you are more than 30 days late.

You can expect a drop of 17 to 83 points for a 30-day missed payment and a drop of 27 to 133 for a 90-day missed payment, according to a compilation of data from credit bureaus around the world.

However, if your payment is less than 30 days past due, you won’t see a drop in your credit score since a payment must be 30 days past due before it is reported to the credit bureaus.

But you may incur a late fee or penalty interest rate – which increases your card’s annual percentage rate or APR (the credit card’s interest rate, which is the price you pay for To borrow money).

Set up autopay to ensure payments are always made on time. And if automatic payment isn’t for you, set reminders and email notifications.

6. Using EMI Options for Credit Card Charges

EMI programs look very attractive and easy to make high value purchases.

However, remember that “what is often free has a cost”. So you need to consider if it’s really a good idea to convert your credit card balance to EMI.

If you are in a difficult financial situation and you are about to not pay your credit card bills, it will be good to use the option because it is preferable to defaulting on payment, which will harm your credit score.

So unless it is really necessary, the EMI option should be avoided, as it not only inflates the cost of the product, but also attracts additional fees and creates long-term debt.

Thus, using the EMI option to buy a house may be justified – when the cost is too high to pay out of pocket. But not for this expensive high-end mobile phone, of which you may not use 70% of the features.

190927 credit score

Credit score is a number based on credit reports, which is a summary of past and current borrowings and repayment history.

7. Ignore Credit Score

Credit score is a number based on credit reports, which is a summary of past and current borrowings and repayment history.

Your credit score deteriorates when you have more credit balance than your credit limit, which prevents you from getting a new credit card or applying for a loan.

The average length of your credit is one factor that determines your credit score. When you close a credit card, the average length of your credit history is affected.

For example, if you have a card that is 5 years old and a card that is 2 years old, you have an average credit of 3.5 years. If you close the 5-year card, your credit age increases to 2 years.

It is not advisable to close a credit card, especially your oldest card. But sometimes it might make sense to close a credit card, such as when you’re charged an annual fee that isn’t offset by its benefits.

But ultimately, to stay solvent, you need to watch your credit score and use your card wisely by avoiding these bad money habits.

4 lessons to learn to master these credit card habits

Lesson #1: Use credit card rewards and points to your advantage

If you have a rewards credit card, you can use that to your advantage. If you have a pure cash back credit card, use any cash rewards you receive to apply to your account balance or deposit them directly into your savings account.

Alternatively, if you have a credit card with rewards points, you can use your rewards to buy discounted gift cards from stores you know, which will help you save on future purchases without having to use your credit card.

If not, you can always redeem your rewards points for cash to put in savings or in your account. However, make sure you know when your rewards expire to get the most out of them financially.

Stock market credit card

If you have a rewards credit card, you can use that to your advantage.

Lesson 2: Pay your credit card in full each month

The best way to keep your credit utilization ratio low and avoid costly interest charges is to pay off your credit card balance in full each month, which also means you won’t have to pay large sums.

It’s effective to control spending by not spending more than you can comfortably repay each month, as this helps you reduce the likelihood of developing long-term credit card debt.

If you want to take it a step further, setting a monthly spending limit that works well within your budget increases the chances that you can actually zero out your monthly balance and avoid interest charges.

Lesson 3: Keep your credit utilization ratio low

What it means by “credit utilization rate” is basically the link between your credit card balances and your overall spending limit. For example, a balance of 2,000 Dhs on a credit card with a credit limit of 5,000 Dhs equals a credit utilization rate of 40%.

As a general rule, your credit utilization ratio should not exceed 40% and keep in mind that high ratios can negatively impact your credit score.

Financial advisers recommend aiming for a 30% credit utilization rate, as this gives you some leeway to cover urgent one-time expenses, which may arise unexpectedly due to the loss of your job during the pandemic. In progress.

Lesson 4: Set up custom spend alerts

If controlling your credit card spending is weighing you down, it’s been widely advised to set up personalized spending alerts.

This will let you know when you have made an abnormally high payment or exceeded a certain balance threshold and you can also combine these data alerts with security alerts to help you flag any pattern of fictitious spending.