Today, learning how to use credit cards became a vital issue. This is because credit, like money, has become a fundamental pillar of people’s personal economy.
This is why if you learn how to use credit cards wisely, they can become a financing tool with great advantages, or on the contrary, become a real headache.
For starters, you do not need to be an expert in personal finance to know that you do not pay your debts or do so after the date of your payment, it affects your credit history and your relationship with financial institutions. However, this article goes beyond the obvious.
How to use credit cards and what mistakes you should avoid
In this article, we will share some keys and errors that you should avoid when using credit cards. Specifically, we will focus on those behaviors that may be affecting your pocket without you having noticed.
The objective is that you use credit cards in your favor, that you can take advantage of the benefits that these give you such as miles, refunds of money and taxes, travel that you can redeem, among others, paying low-interest rates and even without paying them.
1. Not having a credit card
Let’s start with a common error that arises from ignorance, or beliefs that people have, who assume that credit cards, by themselves, are a problem for their finances.
They assume that having a plastic means paying high interest and spending money they do not have. However, the problem is not the tool as such, but not knowing how to use credit cards.
What is a credit card for?
To build your credit history, that is, to have a track record in the banking sector. In other words, to get banks to trust you. So the longer you have been part of the financial sector; Whether with credit cards, due, or different types of credits, your score will be better and the chances of receiving future financing.
This is why credit cards are important when you are starting your financial life, as they are a way to “show” the bank that you are good at paying debts and that you are reliable to respond for large sums of money.
2. Have several inactive cards:
One of the main mistakes we make when learning how to use credit cards is to assume that the more cards we have, the better our credit history will be.
The problem with this is that, regardless of whether you are using credit cards or not, your debt capacity is limited. This debt capacity depends on the amount of your income, and it is based on them that a financial institution determines how much it can lend you.
For example, when you apply for a mortgage loan, the bank will not check which cards you use, but how many you have and what is the total amount you have to get into debt with these plastics, then subtract this value from the possible credit that you will receive.
In addition, if you admit that you are not good at the time of how to use credit cards and you are usually a compulsive person who does not know how to control yourself when buying, the more credit cards you have, the greater the quota will be for unnecessary purchases.
So the recommendation is that you have two maximum cards and one that you use only in case of emergency. And you also learn how to handle your personal finance.
3. Cancel credit cards constantly
One of the metrics to measure your credit quality is the time you take with a credit card and the use you have given it. So if you live taking out new credit cards and canceling them later, this can affect your personal finances.
It is advisable that you do not take out new credit cards under the pretext of promotions or offers offered by commercial establishments. If you already have one or two cards, avoid new cards.
In fact, many times to take advantage of offers, you usually take out a credit card that you never use. What happens is that you will be “wasting” your credit quota with a card that you do not use, and worse still, for which you are paying a high handling fee.
4. Each month pay the minimum amount of the debt
To know how to use credit cards, you must first understand how they work. The number one factor you should consider is time; the later in paying a debt, the higher the interest will be.
How much is the ideal number of installments when we use a credit card? One, maximum two. Remember that a credit card is not an extension of credit that you have, but a tool that gives you benefits by spending money, which already accounts.
If you already have the money to pay the balance of your credit card, the next month that the consolidation of your debt arrives, the ideal would be to pay it off completely. So you would be financing “free” for a few days, and at the end of the month pay what you owe.
The negative side of the minimum payment of the credit card:
Many people prefer to pay the minimum amount of their credit under the pretext that “this is not so difficult” or “does not feel”. However, when you understand that credit cards have the highest rates in the market, and you are paying a 36-month loan, you will peacefully be paying for the same product twice.
This does not mean that paying your minimum fee will not affect your credit quality, but, knowing how to use credit cards, you will understand that the faster you pay, the lower the interest and the faster you will be able to free your debt.
5. Fall into the trap of introductory interest rates
Using credit cards wisely implies that you know there is no free money. Many establishments under the promise of sale that “you are not going to pay interest” or “that you will not have a management fee”, look for you to take out new credit cards.
Now, when you read the fine print of the contracts, you will read that these “promises” are valid for 6 months or a year, and when this happens, you will receive bills and monthly payments that you did not count on.
Another key to using credit cards as a financial genius is to be constantly evaluating and comparing your cards with the competition. Many times in these promotions you can see that your bank is charging you high interest or a high management fee.
So, use your bargaining power with the bank or simply switch to the financial institution that offers you the best benefits.
6. Make emotional purchases with your credit card
The vast majority of people have pretexts to use credit cards wrongly. Many, under the excuse of “earning a few miles”, “giving them back the money”, “not paying certain taxes”, among other promotions, end up spending money they do not have.
Do not fall into the trap of consumerism simply because you are taking advantage of benefits or promotions. When you buy a shirt that you do not need just because it has a discount of 30%, understand that you are not saving 30% but that you are spending 70% that you can use for other things.
“Most people invest 95% with their eyes and only 5% with their minds. They often buy emotionally, instead of doing it rationally. “
The best recipe to avoid emotional purchases and know how to use credit cards is to give yourself time to think if you need it. For example, wait 24 hours before buying something, or consult with your partner or your financial advisor.
7. Exceed the amount of your credit card
Have you ever spent your credit card in a restaurant or a commercial establishment and they say that the funds are insufficient? Beyond the shame that you feel, what you really should question is the management that you are giving your personal finances.
The fact of not knowing how much space or money you have on your credit card is a clear warning sign that something is not working well.
The solution for this is to constantly check your transactions and account statements, so you will avoid making this mistake and you will not have to face that uncomfortable situation when the waiter arrives and tells you that the card does not have enough money.
8. Find out before choosing your credit card
As already mentioned, it is extremely expensive not to analyze the different options you have before taking a credit card.
If you want to have a credit quality and healthy personal finances you should look for the best possible interest rate, you should check how they are charging you, if it is an annual, anticipated, expired, monthly rate, analyze everything.
Remember that to learn how to use credit cards you must first know how they work. And although it may seem a lie, many people do not know how they work, they believe that it is free money they receive, that they do not have to pay every month, and the only thing they are achieving is that their ignorance affects their personal finances.
9. Prefer credit above cash
If you are just learning to handle a credit card, avoid daily purchases such as food, gasoline, and cravings be paid with this plastic. It’s a matter of ease use your debit card.
If you do not understand well how they work and how to benefit from them, you will end up paying 36 installments for all your daily expenses, added to the big purchases, which will lead you to have considerable problems.
Based on this, reserve the credit card for purchases of large amounts such as furniture, televisions, and other expenses that you remember easily.
10. Make cash advances with your credit card
Finally, avoid making cash advances with your credit card at all costs. Only go to this option in cases that are a true emergency and need the money, since banks usually charge you advances with expensive interest rates, the maximum of fees, and usually, without access to benefits such like miles or money back.
If you’re really in trouble, ask your boss for an advance, or a friend or relative who lends you money without having to incur these charges.