5 Credit Card Mistakes You Should Avoid to Keep a Good Credit Score

Credit cards are one of the best credit products to have ever introduced as with the help of one, you are rightfully entitled to enjoy an interest-free period of 45-50 days. Not only this, you are qualified to earn reward points and bonus points that can be either redeemed (partially or in entirety) for cash or products listed by the lender on their rewards redemption catalogue. 

The wide array of benefits doesn’t stop here, as you can easily opt for EMIs to convert your big-ticket transactions into smaller payables for a periodic tenure that is made available to you by the partner bank. Alongside this, there are a plethora of offers that entitles you to earn cashback, discounts, vouchers, lucrative deals on dining, shopping, international travel, refuelling your vehicles, and whatnot; you get complimentary access to lounges at domestic, as well as international airports, among other premium benefits. 

The long list of benefits has many things on offer that are customised purely on the nature of spending by a consumer, the indicative credit score, earnings potential and certain other qualifying metrics. Multiple benefits bundled in a single card make it too tempting as you no longer have to keep a tab on how much cash you should be carrying; over the decade, the adoption of credit cards and digital payments has taken a giant leap. 

Irrespective of a long range of enticing advantages linked with credit cards, there are a lot of minuscule directives that should be followed by every credit card holder to make sure the optimal utilisation of credit cards. Here we discuss five credit card mistakes that a person should avoid while using credit cards to achieve & maintain a prime credit score and financial health in the best possible state. 

• Overspending with credit card

Overspending is closely associated with credit cards as you don’t feel the pinch of burning the cash; it just happens with a swipe at a point of sale (POS) machine, entering an OTP on an e-commerce platform, or a casual scan at any other retailer accepting the credit card. 

With the availability of a larger credit limit as compared to your monthly income, there are instances when you strongly feel that you should purchase certain things without actually realising your essential or non-essential requirements. 

If you can avoid the habit of overspending, you are good to go for hassle-free usage for your lifetime. On the contrary, you may end up paying heavy interest charges if you are perpetually overspending and taking fresh credit to oblige the bills of credit cards. 

• Missing credit card bill payment due dates

Every bank out there is very eager to onboard as many credit card customers as there is a considerable section of society that is still deprived of credit cards. Having multiple credit cards is not a bad idea at all, as one benefits you in shopping, another in dining and the third one in refuelling your vehicles.

A user can further obtain credit cards that can be advantageous for other activities. But with the usage of multiple credit cards, you should take care of the multiple due dates for separate credit cards, as missing the crucial dates could invite penalties and extra interest charges over and above the billed amount, potentially deteriorating your credit score. 

• Only paying the minimum balance, everytime

Credit card issuers always let you choose to pay the minimum balance and the entire billed amount to date. You should immediately change your repayment behavior in case you’ve got a habit of paying the minimum dues instead of the total billed amount. Paying only the minimum dues may seem like an affordable proposition, but you will eventually enter a debt trap by paying interest charges on the already accumulated interest. 

It would be a financially sound decision to curtail your credit card spending well within your repayment capacities than to pay additional interest charges & penalties by only paying the minimum dues. 

• Aggressively applying for new credit cards

Obtaining a credit card for the first time could be a little difficult, especially for individuals who are new to credit, as they don’t have a credit score or a repayment history showcasing their response to handling the credit products. 

The case is outrightly different for a person who already owns a credit card and has achieved a good credit score. Banks are readily prepared to extend multiple credit cards to such customers, given their good credit profiles. 

But you should remain wary while applying for new credit accounts, be it a credit card or a personal loan, as a higher number of such accounts exhibits your credit dependency, and there is a likelihood that you may end up spending beyond your limits. 

Also, there can be instances when a lender may reject your application if you don’t meet their criterion for the credit product. These things can collectively impact your credit score in a negative way, thereby reducing your eligibility for other essential credit offerings, such as a home loan, an education loan, or a car loan. 

• Don’t spend to get rewards

You shouldn’t be tempted by the offer periods and cashback & vouchers guaranteed by the bank on crossing a threshold of spending. It is obviously better to receive a cashback or a co-branded gift voucher, but you should be circumspect before spending effortlessly in the present. 

Such practices should be strictly avoided as they could potentially derail your monthly budgets, jeopardising your savings, investments and the funds set aside for emergency usage.

Moreover, it is never a great idea to spend beyond your repayment capacity, burning a hole in your pocket in order to receive a cashback in the future, the stretch specified by the lender. Most banks tirelessly run such campaigns in a desperate attempt to maximize consumer spending in a designated period. 

Some of these offers are extended by partnering with retailers, as a result of which the deal looks so attractive to the customer. You should not worry about racing ahead during such promotional drives, as you can comfortably capitalise on these offers when you are financially strong to oblige a large credit card bill.