Learn How to Use Credit Cards Wisely
Here are some ways of using a credit card wisely to avoid making costly mistakes:
Understand the Fees that Come with Your Credit Card
Credit cards often come with several fees. You may be able to escape paying some by using your card right. Some such common fees include:
Annual Fees
An annual fee is charged to your credit card account once a year. Some cards don’t charge this fee, while some may waive it for the first year.
Late Fees
You are charged a late fee if you pay less than the required minimum monthly payment or make the payment after the due date.
Foreign Transaction Fees
This fee is charged if you make a purchase using other currencies. It’s usually charged as a percentage of the transaction amount. Some cards don’t charge you to pay a foreign transaction fee. Depending on how you use your card, balance transfer fees, finance charges, and cash advance fees are some other types of fees you may have to pay.
Make Payments
As per your credit card agreement, you need to make a payment every month. Unless you have a charge card, you’re only required to make a minimum payment each month. The minimum payment is a small percentage of your total outstanding balance and can be made easily.
However, it’s better to pay off your balance in full even if you have a card other than a charge card. Making minimum payments only reduces your balance by a small amount as a large portion of the payment gets applied to interest. This means it will take you longer to clear your balance.
Also, pay your monthly payment by the due date to avoid being charged a late fee.
Manage Your Credit Limit
Most credit cards come with a credit limit (the maximum amount you can spend using your credit card). The type of card you’ve applied for, your credit history, and your income determine your credit limit.
Exceeding your credit limit leads to penalties, and your account may no longer remain in good standing.
Additionally, keeping your balance relatively lower than your credit score works better for your credit score.
Apart from these, using your credit card wisely also entails reading your billing statement, avoiding debt, picking the right card, and understanding the different types of transactions and interest rate attached to your card.
