Don’t use credit cards like this!

Credit cards can be a blessing to your financial life when used and repaid responsibly, allowing you to maximise benefits. On the other hand, poor utilisation and inconsistent repayment behaviour can turn them into a curse, lowering your credit score and, in the worst-case scenario, trapping you in debt. Thus, the importance of credit cards in your life is dependent on how you use and repay them. Here are warning signals that you are misusing your credit cards:

Keeping the credit utilisation ratio (CUR) over 30%

CUR is the percentage of your total credit card limit that you have used. Given that lenders often regard consumers with a credit utilisation ratio of more than 30% to be credit hungry, credit bureaus prefer to knock a few points off your credit score when you exceed this threshold. Ensure that your total credit card spending does not exceed 30% of your total credit limit.

Paying only the minimum amount due

Credit cardholders who are having trouble repaying their credit card balances in full on time frequently pay only the minimum amount due on the statement. As the remainder of your credit card bill’s outstanding balances continue to accrue hefty finance charges, which typically range between 23 and 49% p.a., this habit of repeatedly rolling over your credit card balances by making only the minimum due payments can be a sign of gradually falling into a debt trap.

If you are having difficulty repaying your credit card balances in full on time, consider options such as converting eligible large-ticket purchases or the entire outstanding balance to equated monthly instalments (EMIs), credit card balance transfer, or alternative financing options such as pre-approved credit card or personal loan.

Not paying attention to the expiration of reward points

Card issuers increase consumer interest in their products by offering attractive reward points on credit cards. While some credit cards allow you to use collected reward points toward the balance on your credit card, others allow you to redeem them for pre-specified services and items, such as gift certificates, airline tickets, consumer goods, and fuel.

However, because the reward points on most credit cards have a pre-determined expiration time of approximately two-three years, you must avoid ignoring their expiration date, as this would result in you losing out on the benefits associated with the acquired reward points. That said, ascertain that you redeem your reward points before their expiration.

Withdrawing cash through credit card

Withdrawing cash with a credit card incurs not one but two fees. Cash advance fees of up to 3.5% of the withdrawn amount and substantial finance charges of between 23% and 49% p.a. are applied from the withdrawal date until the loan is repaid. Combining these two expenses can leave a significant dent in your wallet, especially if done regularly.

If withdrawing the cash through a credit card becomes necessary, ensure that you reimburse the total amount withdrawn as quickly as possible to prevent incurring associated charges.

Inability to plan expenditures during the interest-free period

The interest-free period is the time period between the date of the credit card transaction and the payment due date, and it typically ranges between 18 and 55 days. Credit card transactions made during this period are not subject to interest charges, as long as the balance is paid on or before the due date.

Try to schedule your credit card purchases, particularly large ones, around your card’s interest-free period to maximise the benefit of this feature.