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Credit cards can be a really useful financial tool if you know how to use them correctly. But they can be very costly if you make certain mistakes.

This guide will outline some of the most common credit card mistakes and how to avoid them.

Taking out a credit card for the wrong reasons

A credit card should be taken out for a specific need or purpose – this could be to fund a big purchase or as a credit score building tactic, for example. This means thorough research should be conducted into what each credit card provider offers and what product will be most suitable for your needs.

A credit card shouldn’t be taken out because you’ve seen a company promoting a credit card with rewards that you want to take advantage of. If you take out a card simply to gain cashback, store points or air miles but don’t actually check the card’s terms and APR, you could find yourself racking up substantial credit card debt that you hadn’t intended to and can’t pay off.

Misunderstanding introductory offers

Most credit card providers will offer promotions, normally reduced interest rates as low as 0%, in order to attract new customers. However, these promotions are usually short-term and may only apply to particular transactions like balance transfers or big purchases like appliances or furniture.

If you start to spend on the card and don’t pay off the debt during the introductory period, then you’ll start being charged the usual rate of interest which is often much higher. If you haven’t prepared for this then you could end up with a large amount of debt that you can’t pay back.

Before you take out a credit card, or any financial product for that matter, you must read the small print, so you know exactly what you’re getting yourself in to. This is where you’ll find information on when the introductory period ends, as well as all the details about fees, costs, and terms.

Maxing out the credit limit

If you’re using a credit card to try and improve your credit score, then the worst thing that you can do is max it out every month. Not only will you be making it harder to pay off every month, using up your whole limit looks like you’re struggling to manage your finances and you will be penalised for it on your credit report.

Try to aim for using a maximum of 50% of your credit limit every month. This will look good on your credit report and it will be much easier for you to manage and pay off in full.

Withdrawing cash

Withdrawing cash is probably one of the worst things that you can do with a credit card. Most lenders will charge a fee for doing so and will also charge interest on the withdrawal as soon as you make it. It will also show up separately on your credit report so future lenders will see that you’ve done it.

Withdrawing cash with your credit card makes it looks like you’re desperate for money and don’t have enough cash in your current account to cover everyday living expenses. If you’ve done this on multiple occasions, then you may struggle to obtain other credit cards in the future as lenders will worry about your credit management abilities.

Missing payments

Completely missing credit card payments will rapidly increase your debt due to fees and interest being added and could also substantially damage your credit score depending on how many payments you miss. Missing payments and carrying a balance for a long period of time is one of the worst mistakes that you can make when it comes to using a credit card.

If you’re using your credit card for regular spending then you must pay off the full balance every month if you don’t want to build up a large debt and damage your credit score.  

Only making minimum payments

Only making the minimum payments every month isn’t as bad as missing payments entirely, but it’s something that should definitely be avoided if you want to demonstrate good credit card behaviour.

Credit card providers make it easy for borrowers to avoid missing payments, and therefore fees, by offering ‘minimum payments’. This is a tiny percentage of your balance, typically 1%-5%. However, if you’re only making the minimum payments every month then you’ll start to accrue interest on the remaining balance, and it will become increasingly difficult to pay off. 

If you’re carrying a credit card balance then you need to be paying off as much as you can every month. So you never miss a payment, set up a direct debit for the maximum amount that you can afford.

Going over your credit limit

All borrowers are given a credit limit when they take out a new credit card. This is the amount that you have available to spend within each billing cycle. The credit limit is usually determined by your income and creditworthiness.

If a transaction that you’re trying to make will result in you going over your limit, a lot of credit card companies will decline the transaction to stop this from happening. Some, however, will allow the transaction to still go ahead and allow you to spend more than your limit. If you do go over your credit limit then you will be charged extra fees and potentially a higher interest rate on your balance.

Applying too regularly

Applying for credit too regularly can really harm your credit score as every time a search is created it will be recorded on your report. If there are multiple searches in a short period of time then it can look like you’re desperate for credit and lenders will be very cautious of this.

If your application for a credit card is declined then you need to take a step back and look at why it was. See if there’s anything you can do to improve your situation before applying for something else as, chances are, if there’s a reason your application was decline once then it’s likely to be declined again.

Missing out on rewards and bonuses

Although you shouldn’t take out a credit card solely for the rewards and bonuses, if you use your credit card responsibly, then make sure you’re not missing out as you could be rewarded for purchases that you’re making anyway.

Shops like Marks & Spencer, Tesco, Sainsbury’s, and John Lewis all offer rewards for instore purchases, so if you shop in any of these places regularly and you pay your credit card balance in full every month, then it’s worth having a look into what bonuses you could get. Other companies offer bonuses such as air miles or insurance products so look at what you’ll benefit from the most.

Avoiding credit cards altogether

You may be put off when you look at the APR on a credit card, or you may have had a bad experience in the past which is making you adamant that you don’t want to take one out. However, credit cards can be excellent financial tools if you know how to use them properly and you’re only charged interest if you don’t pay.

Using a small amount of your credit limit and paying off the balance every month is a really good way of building up your credit score. Credit cards are also ideal for making big purchases, getting you out of tricky situations, or consolidating other debts.

As long as you don’t make any of the mistakes mentioned in this article, there’s no reason that you should avoid taking out a credit card.


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