There are a several advantages to having a credit card. They build great credit rating and also provide a valuable buffer for financial emergencies – for example, if an important piece of equipment were to break down, a credit card can provide a quick and easy payment that won’t affect your current finances.
However it can be easy to forget that credit cards come with a whole different level of financial responsibility. Using a credit card is like taking out a small loan which needs to be paid back the following month – and no later. The grief that can follow a missed payment will only snowball into an even worse situation, and any benefits of having a credit card will gradually dissipate.
So in order to make sure you are being wise about your credit card usage, we have the following rules to live by:
Stick to one or two cards
If you have a good credit score, it is likely that you will get a number of pre-approved credit card offers sent to you promising excellent rates and deals. Unless you really need another card (which is unlikely if you already have one or two) you should consider staying well away from the various invitations you receive – especially as signing up for too many can affect your credit score.
Avoid the minimum payment habit
If you only make the minimum payments for your credit card bill each month, the interest build-up will mean you’ll be paying back more than you originally borrowed over an extended period. Aim to pay back what you owe as soon as possible – and check when your interest-free period ends on each payment to avoid any extra charges.
Never miss a payment deadline
A key rule for credit card users – missing your deadline will see you paying a lot more in additional fees, especially if you are late on more than one occasion. Try keeping a monthly alarm on your phone to remind you when you need to pay your bill.
Keep on top of your statements
It can be all too easy to overlook credit card statements but it is not uncommon for them to have erroneous transactions that may see you losing out. Make an effort to look through your statement when it is sent to check that your expenses are all valid.
Never withdraw money
Your credit card company will charge you a lot of money if you do a cash advance on your card. Not only will you be charged 2-4% of your withdrawal amount as a cash advance fee, but you will also be charged an ATM fee. Worse still, you will have to pay an interest rate that is much higher than your usual APR%.