WE ARE USING OUR CREDIT CARDS IN A WRONG WAY AND HERE’S WHY

Credit cards have become a significant necessity in today’s market. They are our companions whenever we shop for our groceries and when we book tickets for our flights. They are really handy for all kinds of situations.

However, because of the convenience credit cards bring to us, we often make a habit of using our cards in the wrong way without us noticing them. All of a sudden, it evolves into a habit and we fall into the trap of not utilizing our credit card’s full potential.

Reason Number One: Carrying Balance

We fall into this trap before. Most people think that carrying a balance will affect our credit score and nearly half of the American population didn’t know that. This fact was made clear by a survey conducted by financial experts in the past.

The fact of the matter is, carrying a balance would only result in paying interest payments. Instead of making this bad habit, why not pay the balance in full? It will greatly help our credit rating that way and that’s one of the main reasons why we get credit cards. Well, aside from shopping of course.

Reason Number Two: Maxing Out Our Cards

According to another survey that deals with credit cards, four out of five Americans max out their credit card limit. The principle behind this lies in the thought of reaching the limit would help our rating. In reality, our high credit balances can become a hindrance to our good credit standing.

If we don’t know what utilization ratio is, it is the amount that measures our spending against the credit that we have. Many financial advisors and lenders agree that this metric is a sign that can give them information if we are responsible for every dollar that they lent to us. Even if we have the right to spend it all doesn’t mean we should.

Reason Number Three: Annual Fees

Many credit card companies entice people with their dashing deals and perks that come with their new cards. Freebies are cool but don’t get fooled since most of the cards that offer a bunch of perks has annual fees.

There are cases where we can utilize the perks that go along with our credit cards. A prime example of this is if we are a frequent flyer, cards with great deals in tickets and accommodations might be the best for us and the annual fee is justified.

However, if we aren’t a frequent ticket holder, then there are other cards in the market that might offer good deals without that hefty price tag on its annual fee.

Reason Number Four: Rewards

Earning reward points using our credit cards might be one of the most overlooked things in today’s market. If we examine carefully, there is only a portion of the population that uses reward points, while the rest just let it sit until they expire. Rewards are there as a perk and we should utilize it down to the very wire.

Reason Number Five: Closing Down Unused Credit Cards

Some people love decluttering things. Cleaning up the closet with those old clothes for us to save space is excellent. However, when we are talking about unused credit cards, that’s a different story.

Remember the utilization ratio we talked about? Yes, it will go back to that. The reason why we shouldn’t close our unused account right away is that specific metric. If we remove that extra layer of credit extended to us by lenders and credit card companies, we shrink down the utilization ratio’s breathing space. Aside from that, we also diminish the age of our accounts which contributes to our overall credit score.

It is best to utilize it every once in a while. Buy our kids that fancy toy they wanted or treat our spouse for a diner date. In that way, our cards will not be closed because of inactivity.

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