Know The Risks of Using Credit Card And How To Avoid Them

Using credit card for the first time? Here're the risks associated with credit cards you must know!

Choosing the right credit card among the vast categories of credit cards available in the market can be very stressful. One of the biggest risks while applying for a credit card is not choosing the right credit card that complements your financial health and your spending habit. To avoid this mistake you can compare credit cards online and keep other things in mind while applying for a credit card.

7 risks to keep in mind while using a credit card:

1. Overspending: Overspending is the most common mistake one can make. It is very easy to exceed the pre-approved credit limit. This can be the deadliest risk one can take that can lead you to an accumulation of high debts.
   How to avoid it? :- To avoid this risk you need to keep a close eye on your credit utilization ratio so that you do not exceed the credit limit. Moreover, try to keep the credit utilization ratio at 30% so that you do not overspend.
   
   

2. Late Payment: Another risk that is very common is late payment or default in credit card bill payments. This can have a negative impact on your credit score and it will also leave a bad impact on your Credit history. Your creditworthiness solely depends on how fast you can repay your debts.
   How to avoid it? :- In order to avoid this risk, you can choose to opt for an auto-debit facility. This way you won't have to keep reminders of due dates. On the due date, the credit card bill will be automatically deducted from your account. This one method is the safest option to go for.
   
   

3. Not reading the MITC: One risk or the biggest mistake that an applicant can take/make is not reading the most important terms and conditions thoroughly. All the hidden fees and charges are written in the MITC which can help you make an informed decision in order to select the right credit card.
   How to avoid it? :- To avoid this risk you can read the most important terms and conditions before applying for a credit card. You can easily find a credit card's MITC online. After reading all the fees and charges, you can apply for the best credit cards in India that do not cost you much.
   
   

4. Carrying a balance to next month: It is advisable not to carry forward the balance to the next month as it will not help in lowering down the interest rates for you. On the other hand, you are just attracting a high rate of interest in the next Billing cycle.
   How to avoid it? :- To avoid this you need to pay the full balance on or before the due date. So that you do not have to pay a high rate of interest. You can also select the electronic clearing system to clear all the balances on a selected billing day.
   
   

5. Only paying minimum payments: Never ever fall into the trap of paying the minimum amount of the due balance as it will never help you in cost-cutting down your interest rates. This can possibly lead you to a debt trap and will harm your financial health.
   How to avoid it? :- In-hand solution for this is paying the full amount instead of the minimum amount of the due bill. Completely avoid this minimum payment of due bills. Only opt for this when you don't have funds available at all to pay the full amount.
   
   

6. Not reviewing credit card statements: Another risk that a credit cardholder can take is not reviewing the credit card statement very often. Reviewing it once in a while can really make a difference as it will help you in keeping track of your credit utilization ratio or whether there is any fraudulent transaction on your credit card account or not. This way you can report it timely to the credit card issuer and save yourself from monetary loss.
   How to avoid it? :- You can easily avoid it by checking your credit card statement twice or thrice in a month or every Sunday. You are only required to have an internet connection and you check it from anywhere and anytime.
   
   

7. Closing an unused credit card: One of the biggest mistakes that a credit cardholder can make is closing an unused credit card as it will leave a negative impact on your credit history and will make it difficult for you to receive any credit card in the future.
   How to avoid it? :- You can easily avoid this risk by not closing your account. Not using a credit card will not impact your credit score.

Bottom Line

There is a risk of using a credit card but keeping in mind the above-mentioned 7 risks can save you from landing up in a debt trap and from fees and charges. Use your credit card very sensibly and responsibly in order to enjoy its benefits and features.