6 credit card habits that are warning signs of using them the wrong way

 The role credit cards play in your financial life, whether as a boon or bane, is entirely dependent on what approach you adopt when using them and repaying their bills. On the one hand, disciplined usage and repayment habits can make turn them into a boon, especially with the associated credit card benefits and features like interest-free periods, discounts, cashback, EMI facility, etc. Whereas on the other hand, erratic repayment and sloppy usage can make them a bane, capable of attracting hefty finance charges and other fees, thereby burning a deep hole in your pocket.

Moreover, another aspect that impacts credit card users is not knowing the warning signs that indicate your credit card habits are a wrong way to use them. Explained here are some important warning signs which you should not ignore in order to maximize credit card benefits:

Maintaining credit utilization ratio over 30%

This ratio refers to the proportion of the total credit card limit utilized by you. As credit card issuers usually consider maintaining a credit utilization ratio of over 30% as a sign of credit hungriness, credit bureaus may drop your credit score by a few points upon breaching this level. To prevent damaging your credit score and lowering future loan eligibility as well as approval chances, make sure your overall credit card spends remain within 30% of your total credit limit. In case you somehow frequently breach this mark of 30%, either request your credit card issuer/bank to increase the credit limit or opt for an additional credit card by contacting them through internet banking or customer care like SBI credit card customer care. These two ways can bring down your credit utilization ratio within 30% and hence improve your credit score.

Repeatedly paying just the minimum amount due.

More often than not, credit cardholders who don’t repay their credit card bill in full often find an easy way out by repaying just the minimum due amount, which is usually 5% of the total outstanding amount. Although this helps them in saving them from paying any late payment fee, the rest of the outstanding bill amount continues to accrue interest in the form of finance charges, which may go as high as 23-49% p.a.

Getting habituated or too comfortable in repaying just the minimum amount due must be seen as a strong indication of approaching a debt trap. The practice of rolling over your credit card debt by paying just the minimum due per month can surely cost you a lot, in the form of the high-interest rate that keeps piling up on the outstanding amount, which may slowly push you into a debt trap.

Therefore, to manage your outstanding credit card debt, you can consider options such as the conversion of outstanding amounts into EMIs or credit card balance transfer, which can be done by reaching out to your credit card issuer, like the facility of HDFC credit card customer care.

You can also consider liquidating low yield investments; or leveraging your long term investment options by availing of a loan against securities, as the associated interest cost in all these cases is likely to be much lower than the hefty finance charges levied on the credit card.

Ignoring the interest-free period

The interest-free period is the duration between the date of making a credit card transaction and the due date of its payment. Keep in mind that this period usually ranges anywhere between 18-55 days, during which your credit card transactions do not come with any interest cost, also termed as finance charges, provided the repayment is timely done by the due dates.

As a wise move, credit card users should make most of their interest-free periods by planning their credit card spends, including the big-ticket ones, as per the available interest-free period. If you have any queries regarding this period, you can contact your credit card issuer. At the same time, those possessing multiple credit cards with different dues dates can opt to spread their big-ticket spending across various cards that they hold, as this will enable them to avail maximum interest-free period on all such transactions.

Letting reward points expire

Besides key features and benefits in the form of offers like annual fee waivers, complimentary airport lounge access, and free movie tickets, another major benefit that credit card issuers highlight while pushing their plastic cards is the availability of reward points. However, these reward points of most credit cards come with a pre-determined expiry period, which is usually 2-3 years, post which the rewards can not be redeemed. Hence, avoid missing out on reward points’ redemption benefits such as conversion into air miles, gift vouchers, etc., by going through the terms and conditions of the chosen credit card’s reward point program. 

Staying away from credit limit increase

Many times, believing the fear of a spike in spending and eventually the subsequent possibility of landing into a debt trap makes many existing credit cardholders stay away from increasing their credit limit, even if the same has been offered by the card issuer’s side. Such users need to remember that judicious use of an enhanced credit limit can certainly assist in improving your financial health by reducing the CUR and giving more liquidity for financing spends. This way, accepting a credit limit increase allows more room to manage financial emergencies. Hence, feel free to contact your card issuers, such as through HDFC credit card customer care to availing higher credit limit if offered or eligible.

Making cash withdrawals through credit cards.

Withdrawing cash through your credit card attracts twin charges in the form of cash advance fees as well as finance charges right from the day of such withdrawal till the date of repayment. Those who have any queries regarding this cash withdrawal feature of credit cards can reach out to their lenders, such as by contacting SBI credit card customer care. Moreover, remember that, although cash withdrawal via credit card should always be your last option, make sure to always repay the entire withdrawn amount as soon as possible, in case the withdrawal becomes totally unavoidable.