Credit cards serve as convenient tools for seamless payments and expenditures, providing enticing consumer rewards such as cashback, travel discounts, and credit points. Nevertheless, this convenience comes with potential pitfalls. Misuse of credit cards can lead to steep interest rates and additional charges. Let’s explore the 10 common mistakes associated with FD credit cards and strategies to avoid them.
Common Credit Card Mistakes and How to Avoid Them
1. Maintaining a carry-forward balance each month
It’s a widespread misconception that carrying a balance on your credit card every month can positively impact your credit score. In reality, this notion is unfounded. Maintaining a higher balance results in an elevated credit utilization rate, leading to increased interest rates. To avoid this pitfall, consider opting for an FD credit card, such as the DreamDifferent Card from Kotak 811. This choice not only minimises paperwork hassles but also supports a lower credit utilisation rate. It’s crucial to disregard the myth that carrying a balance is beneficial and instead focus on responsible credit practices to promote a healthier financial profile.
2. Only making minimum payments
Making minimum payments before the due date is a must. However, doing just that doesn’t suffice in the long run. It puts the credit card bearer into a vicious cycle of debt. Hence making proper arrangements well ahead of time allows smooth and consistent working of on-time payments.
3. Missing the payment date
Failing to meet the credit card payment deadline can have severe consequences for one’s credit score, ultimately impacting the offered credit limit. Notably, missing the due date by just 30 days may not result in a substantial score decrease, providing a slight buffer period. To reduce this risk, utilising the autopay feature proves invaluable. By setting up autopay, individuals ensure that their credit card payments are automatically deducted on the specified due date, minimising the likelihood of late payments and associated credit score ramifications. This proactive approach promotes financial discipline. It also safeguards against the detrimental effects of delayed payments on creditworthiness.
4. Negligent to review the billing statements
It is absolutely essential to check the billing statements periodically to be aware of the transactions made. That will help to notice any errors that might have occurred. By doing this monthly or weekly, one can spot potential fraud early and resolve any extra charges that might have been incurred. One can also use the credit card validator facilities provided to check if the expiration date of the card is near.
5. Insufficient information about APR and applicable fees
On being approved for a credit card, one receives an agreement that the bearer is expected to sign. That is not very commonly read by most people. However, one should always do so. By doing that one can easily understand the basic accounting definitions and terms. It also gives an idea about the hidden applicable fees that come with the benefits of having a credit card and also if credit card validator facilities are provided.
6. Taking out a cash advance
Opting for autopay, while seemingly convenient, poses significant risks as it triggers immediate interest charges from the payment due date. Additionally, certain credit cards impose a cash advance fee, typically amounting to around 5% of the total transaction value. This approach not only results in financial penalties but can also lead to accumulating debt at an accelerated pace. It is crucial to weigh the convenience of autopay against the potential financial implications, considering both interest charges and additional fees. Prudent financial management involves exploring alternative payment methods that do not entail immediate interest accrual and hefty cash advance fees, thereby mitigating the adverse consequences associated with automated payment setups.
7. Not understanding introductory 0% APR offers
Different banking sectors offer varied offers on new purchases and bank transfers for a particular time frame. That makes it an easy pick to reduce interest charges. Hence one should have an idea of such benefits and make full use of them.
8. Maxing out the credit card limit
Using the majority or all of the credit card limit is not a great idea. Here the utilization rate will be very high and hence lead to a decrease in the credit score. If one feels that the limit is not sufficient for the user, they can ask for a credit increase. Credit cards are also issued against an FD (fixed deposit ) and are called FD credit cards. Digital savings accounts like Kotak 811 provide their customers with DreamDifferent cards that work similarly, offering them a credit limit that equals 90% of their deposited amount.
9. Applying for new credit cards too often
Each time one applies for a credit card, there is an inquiry that happens for its credit report. The more inquiries, the more will be the risks of appearance. To avoid that one can take the help of pre-qualified forms through which one can check if it stands qualified for a card without damaging the credit
10. Closing a credit card
The average time one has a credit card makes up the credit score. It is generally not advisable to close a card except in situations where the annual fee is more than the benefits availed.
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Credit cards require maintenance and mindfulness to be fully utilised. One should be extremely careful of the steps they take to avoid any extra costs. The stakes here are high and so are the benefits. Make sure to contact customer care services
