Ready to get your new credit card? Afraid about potential danger related to credit cards? If yes, know about the risks and how you can overcome them. New credit card users are easy targets of credit card risks. When a person starts using a credit card, it looks like free money. Why only new users? Experienced credit card customers also make the same mistakes.
Credit cards are a good way to get rewards and discounts on your purchase. Not only this, but they also help build your credit score. This score is important if you want to take out a loan for your home or car. So, it is better to understand risks to avoid them. Now, you can happily shop keeping in mind the tips to stay away from dangers associated with credit cards. So that you can enjoy amazing rewards, discounts, and allowances instead of heavy interests. Below are the risks of using a credit card and ways to overcome them.
Using your credit card is like taking a loan. Here also you will have to pay interest. So, beware of your spendings. If you spend more than you can afford you will face problems while paying the bill. On every unpaid bill, you will have to pay interest. It will keep on increasing and will become hard for you to return. Leading you into credit card debt. It will also affect your credit score. So, do not spend up to your credit card limit. Make a monthly budget to decide the amount you can spend. Accordingly, make the purchases.
Messing credit card payment:
Missing your payment is not good for your credit score. As the credit card history gets added to your credit report. If you fail to make a monthly credit card bill payment, you will have to pay a penalty. As a penalty, it charges your account with late fees. About your late payment reports are sent to three credit bureaus. Once reported it will be stuck on your credit report for the next seven years. To avoid this you can go for an automatic payment method. But, for that, your account must have enough balance before the withdrawal. Another option is to set up reminders for payment.
Payment of heavy interest charges:
Carrying your balance to next month, you may have a certain amount as the interest. Interest is based on credit health. So, if you have a better credit score you will have to pay less interest. But, if your credit score is average you will have to pay a monumental amount as interest. In January 2018, the annual percentage rate for credit cards was 16.32%. If you have a lot of balance, opt for a balance transfer card. Its introductory offer gives you a 0% rate for a period of 9 months to 21 months. A better way is to pay your full balance on time.
Applying for many credit cards at once:
When you apply for a new credit card, you have to face a hard inquiry. In the inquiry, the card issuer checks your credit. Each inquiry is shown in the report. Hard inquiry affects your credit score in small amounts. Though, they disappear after some time. But, it is better to avoid more inquiries. You should avoid applying for credit cards or rather in general cards if you do not need them. If you can make a card according to your wants, contact professionals to know about it. Do not apply for unwanted credit cards. As it can lead to unnecessary hard inquiries.
Using too much credit limit:
The credit limit is set on your credit card. Your utilization of the available credit limit is a factor that creditors consider while approving your loan. When you are near or exceed your credit limit, lenders believe that you are not able to pay. So, if you are unable to pay your debt, how will you pay the loan? So, they are reluctant to approve your loan. If they do, they will charge a huge interest rate. Therefore, a high credit utilization ratio will harm your credit score. To avoid it try keeping your utilization ratio 30%. If your score is already high, you try asking the credit card issuer to increase the credit limit. Also, consider budgeting your purchases. Even paying your credit card debt will reduce your credit utilization ratio.
Overcoming risks related to credit cards
Using a credit card will have some risks. Following some discipline will help you avoid those dangers. Maintaining a good credit score is very important as it plays an important role in taking a loan or credit. So, make payments on time and avoid creating debts. Also, try to create a monthly budget. It will help you stay within the credit limit. Credit cards offer rewards and privileges. But applying unnecessarily can harm the credit score. People think that credit cards offer ‘free’ money. But at the end of the month, you have to pay. So, think if you can afford it before swiping your card.