Credit cards have great perks like getting cashback, collecting miles and earning card points. That is of course, if you know how to make credit cards work for you and not against you.
Here are some common bad habits to avoid, so that you can make sure to be the master and not the slave to your credit cards.
1. Building a bad credit history or no credit history
A good credit history positions you well for any loans you may have to take for your new home, car or large purchases you need to make. While it might seem that not having a credit card could give you a good credit history, it’s the opposite.
No credit history doesn’t translate to a good credit history. Instead, using your credit card and paying your bills on time actually gives you a better credit score than not using your credit cards at all. It shows that you can be trusted with credit and have a habit of promptly paying back.
Having more than one card and paying off the bill on time every month gives an even better credit score.
In fact, having more than one card and paying off the bill on time every month gives an even better credit score. That said, don’t get more credit cards than you can keep track off. There are annual fees and payment dates to keep track of so don’t bite off more than you can chew because not paying off your credit card in a timely manner can cause you to clock up a bad credit history, which is worse than no credit history.
Read more: Beginner’s Guide to Building Your Credit Score in Singapore
2. Not reading the fine print of your credit card perks
While the perks of credit cards are always a great draw, the fine print tends to have all the details we really need to know to fully utilise a card’s perks. For instance, a perk may be getting a large percentage in cashback—however, you need to hit the minimum spend consecutively in order to get such a good rate. If your spending doesn’t regularly hit that minimum spend, then you might just be better off with a different credit card.
Understanding your spending habits can also help you make the most of your credit card perks. For example, if most of your money is spent on dining out, then you may want to be on the lookout for credit cards that are tailored for that. To get the best perks, an understanding of our habits and the fine print of the card details is crucial.
3. Only paying off the minimum monthly payment
While you’re only expected to cover the minimum repayment sum for the month, it’s always best to pay off more. Why? The minimum repayment only covers the interest rate of the amount you spent. So taking this route is like taking a fast track to a life of credit card debt. Needless to say, this is not a train you want to be on.
Credit card debts can increase faster even if you spend less the following months.
Credit card interests are charged on a daily basis for any outstanding amounts and these rates will also apply on any new purchases. This snowball won’t stop until the full settlement is received. This is why credit card debts can increase faster even if you spend less the following months. Credit card interest can be as high as 25% per annum.
For example, if you haven’t paid off $5,000, in a year you would have to pay an extra $1,000, if you continue dragging it out, it would be an additional 25% on top of the total amount of $6,000. So, make it a point to pay off more than the minimum repayment or the full sum every month to avoid ending up knee-deep in debt.
4. Waiting till the end of the month to check your bill
The beauty of online banking means that you don’t have to get a surprise at the end of the month. Make it a habit to check in on your credit card usage at the end of every week so that you can adjust your spending for the following week.
It’s always helpful to have an attainable budget and review your credit card bills against that budget. Especially if you have multiple credit cards and savings accounts, you want to make sure you have a good and regular overview of your spending which the Planner Bee app can help with.
Remember that credit cards can also be a short-term solution for when you are short of funds and need to make a purchase. They are not meant to be long-term loans.
Practicing good credit card habits not only helps avoid debt and gives you a good credit history, it can also keep help allow credit cards to serve you well—with all the perks.
