5 Credit Card Mistakes You Can Bounce Back From
We’re all human, and we all make mistakes. Sometimes those mistakes are irreparable and costly. Thankfully, even credit card mistakes aren’t all equally lethal to your financial health. Here are 5 credit card mistakes you can afford to make…though you should try to avoid them in the first place!
Taking too long to get a credit card
It’s wise to be wary of credit cards and the pitfalls they might lure you into, but waiting too long to get one can be detrimental to your future, especially if you skipped the easiest debt possible, your student debt, by going the FA-MA scholarship route. Banks will have no record of your credit history. This will make them wary of lending a large sum to you to pay for your first house or some other high-value loans.
Sometimes, staying away from debt doesn’t pay. Luckily, you can remedy the situation pretty easily – just sign up for a credit card to start building your credit rating!
Missing a payment
We’re all familiar with the sensation of time flying by. Your bank, however, won’t accept that as an excuse for late payment. Whether it’s because you genuinely forgot, or are unable to repay your balance, that missed payment will knock you several rungs down the credit score ladder.
On the bright side, missed payments are only reported to credit bureaus after 30 days of non-payment, so all you have to do is pony up the cash, pay at least the minimum repayment amount plus penalties, and you’re good to go.
Exceeding your credit limit
You should try to keep your balance below 30% of your limit range to show that you’re a sensible spender. The difference between your balance and your limit is known as your credit utilisation rate, or in simpler terms, your balance-to-limit ratio. Exceeding 30% of your limit will hurt your credit score, as you’ll appear to be a risk to creditors.
If your credit limit is RM3,000, RM1,000 should be the maximum amount you swipe for that billing cycle! Once you’re maintaining your spending below this percentage, your credit score will gradually improve.
Inappropriate use of rewards cards
Rewards cards reward you for spending, which isn’t what voracious spenders need if they don’t have the financial chops to back their purchases. The rewards points and cashback opportunities tempt you to over-spend, to over-extend your finances just because you think you can earn part of it back. You can, but is it worth a busted credit score?
Instead, use credit cards only when necessary, keep your balance below a third of your credit limit, and accumulate your rewards slowly over time. That extra RM10 cashback can just as easily be earned next month, so there’s no need to rush.
Closing a credit card
Closing a credit card may help you curb your impulsive purchases, but be forewarned that it will temporarily dampen your credit rating. That’s because your available credit goes down once you close a card, raising your credit utilisation rate and providing you with less leeway to spend your credit.
The fastest way to recover from this is to go on a cold, hard cash binge for a while and keep your remaining credit cards only as a back-up plans while you repay any other debt you have. This way, you won’t rack up excessive credit that wasn’t excessive before. And once you’re ready to get a new card, you can check out our credit card guide to find the perfect fit for the new you.
You can’t turn back time, but you can learn from your mistakes, and know that your mistakes won’t – or didn’t – cripple you.