Credit Mistakes You May Not Realise You're Making and How to Avoid Them

Many of us stress about achieving and maintaining a good credit score from the moment we begin earning. The discourse around credit is almost impossible to ignore, but it can lead us to apply for credit cards that we don't really know how to utilize correctly!

Some people are naturally a little more reckless with their spending and run into difficulty with their credit card bills. Others, however, are simply unaware of the common blunders they're making that can potentially hinder their ability to borrow further down the line.

No matter which camp you fall into, these are some mistakes to watch out for regarding your credit card usage.

Not Checking or Misinterpreting Interest Rates and Fees

With so many types of credit cards on the market to consider, comparing and contrasting the fine print can be exhausting. While it's certainly not the most enjoyable task, it's incredibly important to do your research before taking the plunge.

If you spot a low-cost annual fee, you might assume this card will be your most financially sound option. This can cause you to overlook the interest rates or the benefits the card actually offers. For this reason, making a snappy decision isn't a risk worth taking.

Only Signing Up Based on Welcome Deals

Welcome deals are purposefully lucrative and offer you perks like no annual fees for your first years or extra points for simply signing up. Most of us are instantly drawn to these incentives but don't bite the bullet right away without looking into the associated costs once your first year is up.

If a credit card company promotes these benefits, it doesn't necessarily indicate that their usual terms are questionable, but you still shouldn't overlook them. When you spot an offer for first-time users, assess how the overall package weighs up against other companies, as you usually would.

Regularly Only Making the Minimum Payments

Minimum payments can be a point of confusion for many credit card users. The term itself is quite self-explanatory, but only repaying the baseline amount due can cause your bill to soar in time. In a nutshell, just because only a certain sum is due doesn't mean that you should consistently opt for the lowest repayment required.

There may be some bill cycles when you're slightly more strapped for cash than others, which is when this option can come to the rescue. For normal circumstances, though, putting off making larger payments will only keep you in debt for longer.

Making Late Payments

We all know that missing payment deadlines will subject you to some unfavorable interest rates. If you're a few days late, your credit score likely won't be affected too much, even though it'll cost you some extra cash. When more than 30 days have passed since your last repayment was due, your credit rating can take a hit.

Unless you find yourself in a fix, keep late payments to a minimum. Many people use ACH transfers to ensure they don't fall behind, but all it takes is creating a reminder or alert if this option doesn't work for you.

Applying for Too Many Credit Cards in a Given Timeframe

There are so many credit cards out there, all of which come with different fees, benefits, and terms. When we spot an alluring offer or a new card that may work for our spending habits, we can be tempted to make an impulsive decision to sign up. While this mightn't seem like an issue on the surface, it can raise a red flag for lenders.

This is because inquiries show up on your credit report each time you apply for a new card. Too many of these in a short period of time can cause lenders to question your credit history. If possible, don't sign up for more than one card every six months.

Using Your Card for Cash Advances

Having instant access to money can come in handy in a range of scenarios, but applying for a cash advance isn't something you should make a habit of. Most companies treat cash advances differently than purchases, which not everyone realizes.

Not only will you likely be required to pay a one-time fee each time, but you'll also face increased interest rates. To make matters worse, the grace period that comes with standard purchases isn't applicable for cash advances. All in all, it can turn out to be an expensive decision!

Undervaluing Your Credit Utilization Ratio

Your credit utilization ratio is the percentage of your credit limit you're currently using. It's easy to overlook its significance as you'd assume your score won't be affected so long as you continue to make your repayments on time.

In general, it's recommended that you keep your credit utilization ratio below 30%, but lowering it can benefit you in the long term. While it's not always possible to do so, reducing this percentage to single digits can increase your borrowing power substantially. Those with the best credit ratings tend to have credit utilization ratios below 10%.

Taking on Unnecessary Debt

Credit cards can be tricky to use, as we're essentially told that we need to borrow money to prove we can pay it back. Yet, acquiring too much debt can be damaging and slash our chances of securing a loan.

In some cases, people utilize their credit cards too much, not because they need to borrow money but because they assume they have to if they want to improve their scores. Even though this can seem like a well-thought-out decision, it might just put you in debt when you could have easily avoided it. Instead, stick to smaller purchases where possible.

Boost Your Credit Score by Steering Clear of These Easily-Avoidable Mistakes

A little extra vigilance can go a long way in terms of enhancing your credit score. By dodging these common pitfalls, you can make your credit card work for you and keep your financial woes at bay!