Know the risks involved in using Credit Card often
Credit cards becoming more common now, credit card payment defaults have also gone up. The following are the risks involved in using credit card frequently:
Credit score and credit history is extremely important as lenders look at credit score and history before giving a loan and if the credit score is poor, one can end up not being able to get a loan when required.
Credit card transactions are considered as equivalent of taking loans. Hence, credit bureaus include credit card bill defaults in the credit report and reduce credit score accordingly. The best way to avoid this is to make sure that credit card bill payments are made on time.
The easy availability of credit along with exciting reward points, cash back offers and discounts often entices you to prepone expenditures and buy products which you can do without. In credit card the money is not debited from your account immediately it may not let you realize how much you are spending and this one of the biggest risks of using a credit card.
Credit card holders can end up spending more than they can repay and this can lead them straight into a debt trap. The best to way to avoid overspending is to keep track of unbilled balances on your credit card.
Unpaid bill – Charges
Credit cards often charge 35% to 50% interest on the unpaid balance. Failure to repay the minimum amount due, which is usually 5 percent of the bill amount, will attract an additional late payment fee of Rs 1,000 (varies from bank to bank). If the cardholder decided to pay the bill partially and carry forward the rest, all further transactions attract charges till the bill is paid completely.
Credit Card Debt
Credit card holders are unable to restrict the usage of cards and this leads to a large amount reflecting as due on the monthly statements. Credit cards offer partial payment facility which means that the cardholder can pay the minimum payable balance and carry the rest forward. The carried forward balance attracts interest rate which makes repayment difficult and this habit of carrying forward balance can lead one straight into a debt trap. Make full payment on time to avoid this risk.
Multiple credit cards
If minimum expense criteria of bank are met they will waive off annual credit card charges. So, generally you overspend using all this cards to get waive off from this credit card charges and avail additional benefits offered.
When you have multiple credit cards you easily switch between them while shopping and this might not let you realize how much you are spending in a month. In such a situation, you have no choice but to carry forward the balance. If you don’t need multiple credit cards then you should return back the cards to respective bank and get it cancelled.
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