How do Credit Cards Work | 7 Common Credit Card Mistakes
The use of credit cards is one of the hallmarks of the modern-day consumer. It is important to how do credit cards work to utilize in a profitable way. Many people use credit cards to enhance their ability to purchase the things they that need and desire in life.
However, the irresponsible use of credit cards can have a devastating and long-term impact on one’s finances. This article summarises the seven top mistakes that occur when using credit cards.
How Do Credit Cards Work?
Credit cards are similar to cash converters logbook loans. Plastic money gives room to earn extra benefits and enough room to have control. Most of the banks provide 90 days to clear the used amount without charging interest.
Banks charge a massive rate of interest in the case of missed or delayed payment. As there is enough time frame to clear the credit, it is beneficial for people to use regularly.
Benefits of using Credit cards
- Emergency money
- Avail Extra Benefits
- Improves Credit Rating
- Additional Discounts
7 Common Credit Card Mistakes
- Too Many Cards
- Making Late Payments
- High or Variable Rates
- Paying Only the Monthly Minimum
- Exceeding the Limit
- Using it for Insignificant Purchases
- Not Reading the Fine Print
1. Too Many Cards
Since credit card offers frequently arrive in the mail. Many people can not resist the temptation to open a new credit card account.
Having too many credit cards can affect the consumer’s credit score like Mortgage loans and can often lead to problems in making the monthly payments. FICO scores are based on the total amount of available credit, and too much can lead to lower scores.
2. Making Late Payments
Making late payments is a sure way to incur a higher interest rate or have outrageous late fees assessed. Cardholders that regularly make late payments can negatively impact their credit rating. Many credit card issuers will raise the interest rates if payments are not received in a timely manner.
Cardholders should make every effort to make at least the minimum payment on time to avoid fees and negative impacts on their FICO scores.
3. High or Variable Rates
Many people apply for credit cards without doing comparison shopping for the best rates. They are often happy to receive a tempting offer for a credit card with a low introductory rate. They don’t take the time to read the fine print to find out what the price will be once the initial rate period ends.
They often find themselves with a credit card with a very high fixed rate or a variable rate that can rise drastically without warning. A smart consumer will shop around for the most competitive prices.
4. Paying Only the Monthly Minimum
Many credit card users make the mistake of making only the minimum payment each month. By doing so, they are extending the length of time it will take to pay off the account even if no new charges are added. Paying only the minimum will typically take 10-15 years to pay off the balance.
In some cases, cardholders may be stuck paying off a balance for as much as 45 years. Recent legislation has required credit card issuers to show how long it will take to pay off a balance on the monthly statement.
5. Exceeding the Limit
Cardholders should carefully monitor their statements each month to ensure that they don’t exceed their credit limit. Exceeding the deadline could result in over-the-limit fees and could lead to a negative credit report.
6. Using it for Insignificant Purchases
Credit cards should be used for making major purchases such as appliances, vacations, emergency purchases and things that are necessary. They should not be used as a substitute for cash for insignificant or impulse purchases.
Many users may feel that those small purchases aren’t a big deal. However, those small purchases can add up quickly especially if the user is not monitoring how often they are using the card.
7. Not Reading the Fine Print
Most people that apply for credit cards only pay attention to the introductory rate that many cards issuers dangle out there as teasers. That five percent rate or even a zero percent rate may seem like a great deal, but users that don’t read the fine print will find that those rates may only last six months or one year.
They are often surprised when the price jumps to an exorbitant percentage rate. The prices can often rise immediately if the cardholder makes a late payment, get a cash advance or go over their limit. Users should familiarise themselves with the terms of the credit card.