5 common credit card mistakes you should avoid

A credit card has now become an indispensable item for many of us in our daily lives. A financial tool that offers easy credit, helps manage large expenses, improves chances of loan approval, builds credit score and acts as the prime support for emergency situations can be misused in several ways. As a result, one may find themselves trapped in debt, penalties, and a damaged credit score.

AU Small Finance Bank underscored the importance of credit cards as a preferred payment tool for travel-related expenses ahead of the travel season, marking a notable shift in consumer spending behaviour. More travellers are opting for credit cards to fund their journeys as it offers convenience, rewarding benefits, and flexible repayment options.

With rising disposable incomes, credit cards are playing a central role in enabling seamless, secure and cashless travel. Indian consumers find it easy to make hotel reservations, flight and train bookings with credit card use. What has made credit cards a compelling choice during peak travel periods is its ability to convert high-value spending into manageable repayments, combined with reward points and cashback benefits.

However, credit cards also bring risk to credit score as late payments can affect an individual's ability to obtain loan, mortgage approval and other financial products. To evade these rinks, we have created a list of 5 credit card mistakes one should avoid.

1. Missing Payments

Late payments can severely damage credit score. According to FICO data, if a credit card user goes 30 days past due date, missed payment or makes late payment then credit score can drop by 17 to 83 points. The impact on credit score would be even worse if late payment reaches 90 days window, resulting in drop up to 133 points.

To ensure timely payments, the easiest and best practice that one can adopt is to activate monthly autopay. Otherwise, the option of calendar reminders and email notifications is also available to avoid missing a payment.

2. Carrying a Balance Every Month

One common myth is that carrying a balance improves credit score—this is false. This practice increases credit utilization, which can lower credit score in reality. A research done by FICO observed that “high achievers” used just 7% of their credit limit on average, who are consumers with an 800 FICO Score. While a cash-back card helps one save money, but carrying a balance does the opposite.

3. Paying Only the Minimum Due

Although minimum payments ensure that the account remains active but it increases total interest paid and extends debt for months or years. The best practice is pay more than the minimum, ideally the full amount each month.

4. Not Checking Credit Card Statement

If you ignore checking your credit card statement periodically or monthly, then you put your hard-earned money at stake for huge losses. By reviewing recent transactions, one can take early action against errors or fraud. This way, the possibility of fraud or forgotten subscriptions going in your bill unnoticed in minimal.

5. Not Understanding Credit Card Fees and APR

It’s important to review the cardmember agreement document that states annual percentage rate and assorted fees, which every customer receives upon credit card approval.

• Annual fee refers to yearly charge that many companies charge just for possession of the card.
• Purchase APR is he annual percentage rate assigned to a customer if balance is carried forward from month to month
• Balance transfer APR is the interest rate applied to balance transfers which is often the same as the purchase APR.
• Penalty APR is the fine on late payment, which can be higher rate than the standard APR.