What Not to Do with a Credit Card

Having a credit card is important for many financial aspects of your life. Certain doors are more likely to open for you when you have one. Of course, you must be responsible with your credit. You should also know what you should not do with a credit card.

Skipping Payments

When you use your credit card, you’re expected to make payments when you receive a bill. One of the worst things you can do is to shrug off payments that are due and skip paying them. It can damage your credit reputation, score and creditworthiness. You normally get around 45 days to make payments, which is ample time. If you avoid paying, you’ll also be charged an annual fee on your credit card.

Making Only Minimum Payments

Another thing you should not do with a credit card is make only minimum payments when a bill is due. It might be tempting to pay the minimum balance listed on your bill, but this can work against you. It will result in an interest rate that will only increase if you make this a regular habit. Paying off the entire bill all at once is the best way to avoid that.

Making Late Payments

Making late payments on your credit spending is another thing you should avoid doing with a credit card. If you pay past the due date, it shows creditors that you are irresponsible, which can negatively impact your credit score. In the future, if you try to apply for new credit, lenders can view you as a poor risk due to habitually late payments. Set reminders for the dates when a bill is due if you have trouble remembering.

Going Over Your Credit Utilization Ratio

Asking the question “How much can I spend on my credit card” is fair. When you get a credit card, it comes with a limit for your spending. It’s important to be smart about your spending when using your credit card. You should stay within 30% of your credit limit. This is known as your credit utilization ratio. For example, if your credit limit is $1,000, you should only spend up to $300 when using your credit card. One thing you should not do is to exceed that 30% of your credit limit as it can make it more difficult for you to afford paying back what you owe. In turn, this can result in your credit score declining.

Letting Someone Else Use Your Card

Loaning out your credit card to someone else is a big mistake. You have no control over how much they spend and are stuck making the payments. If the person maxes out your card, you’re in even bigger trouble. Unless the other person is an authorized user such as your spouse or child who’s responsible, avoid doing this.

Taking Cash Advances from Your Card

Although you have the ability to take cash advances from your credit card in emergencies, it’s best to avoid doing this at all. According to the experts at SoFi Invest, “Your cash advance limit, or the amount of money you can access immediately through your credit card, can vary depending on your credit limit.” If you make it a habit to take out cash advances, it can adversely affect your credit score. You may also have bigger balances to contend with on your account. If you need cash, use your debit card at an ATM or withdraw some from your savings account.

Knowing what not to do with a credit card is key to knowing how to be responsible with your credit.

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