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It is always good to use cards in a judicious way because at the end of the day you are the one who has to settle the bills. Lack of knowledge on the pros and cons of the card or ignorance may cause you trouble.
It is quite important to know how your card works and how you can have a good experience with cards. It is also important to identify where you may go wrong. Some mistakes that you have to avoid are explained below.
Every card has a due date by which you have to pay the outstanding balance of the purchases you have made on your card. If you miss paying on time, you have to pay a late payment fee. This fee is usually calculated on a daily basis.
As a rule of thumb, the late payment fees charged is 1% of the outstanding balance or RM10, whichever is higher. The late payment fee can go up to RM100. Most Malaysian banks follow this formula to calculate the late payment fees.
Instead of paying the penalty, it is wise to make your payments on or before the due date to save a lot of money that will go as penalty charges. Also, a history of late payments will increase your finance charges and reduce your credit score.
Paying Only Minimum Amount
Banks allow you to make a minimum payment of 5% of the outstanding balance or RM50, whichever is higher to continue with the billing cycle. This option is especially helpful during months where you are facing difficulty managing your monthly expenses.
However, utilising this facility every month is not recommended. Paying just the minimum due shows that you are not managing your finances well enough. This habit delays the settlement of your bills; alongside, the payable interest multiplies every month and turns out to be a huge debt one fine day. Instead of having to pay a huge amount in the future, it is wise to make extra payments each month and settle your debt quickly.
Delay in Reporting Lost/Stolen Card
You have to notify a loss or theft of your card to your bank immediately. The bank will instantly block your card so that an unauthorised person cannot use your card in any way.
If you fail to inform your bank immediately, then an unauthorised person gains access to your card and credit limit. The person may misuse it, take cash advances and leave you with a pile of debt. Since you have not reported the loss, your bank will assume that you have made all the transactions and will make you liable for those transactions.
Utilising more than 30% of your credit limit will hamper your credit score. Keeping your credit card transactions within 30% of the limit will make it easy for you to repay your bills. If you exceed your credit limit, you might have to pay over-the-limit charges.
Applying for Multiple Credit Cards
Each time you apply for a credit card, it will reflect on your credit report. So, if you randomly apply for every other card available in the market, banks may consider this as a suspicious act with intention of fraud. So, first think about your preferences and compare cards. Then choose the right card and use it wisely.
Ignoring the Terms & Conditions
Generally, many people ignore to read through the terms & conditions of a card. However, knowing and understanding all the terms & conditions is very important. You will get an insight into the complete process such as the late payment charges, the interest-free period, finance charges, annual fees and conditions for a waiver, the rewards you can earn, cancellation procedure, lock-in period and many more. Spare some time and effort to read the terms so that nobody can take advantage of your ignorance.
Making Cash Advances
Do not take cash advance from your credit card unless it is an emergency where you do not have other options. Banks such as HSBC require you to pay a cash advance fee of 5.3% on the amount you have withdrawn or RM15.90, whichever is higher for each transaction.
Additionally, you have to pay a finance charge of 18% p.a. on the advanced cash which is calculated on a daily basis. This finance charge is way higher than the interest charged on personal loans. Search for other alternatives to get cash and keep the cash advance only as the last option.
Ignoring the Benefits
When you read through the terms & conditions, you will realise many ways to save money. For example, most banks provide an interest-free period of 20 days from the date of purchase. If you pay your bills within this interest-free period, you will not be charged any interest. Therefore, you can save finance charges of at least 15-18% p.a. on your purchase.
In another case, a card may provide you with a 0% balance transfer facility, which normally can go up to 18% p.a. You can transfer and consolidate your outstanding balances from other cards and repay them with an extended tenure at 0% interest.
Do not miss on keeping yourself updated about the benefits a card offers you. This will help you save a lot on your credit card bill payments.
Cancelling the Card
Do you have plans of cancelling a credit card, which you think is no longer useful? Think again. Cancelling a credit card would have a negative effect on your credit score. If you truly want to cancel a card, you have to make sure that the card’s account is completely closed without hurting your credit score. Don’t forget to cross-check on the closure because your cancellation request may not be processed immediately.
Managing Credit Cards Properly
Managing a credit card is much important than acquiring one. A basic understanding of your card is essential. It will help you to plan to use your card properly. Do not make the mistakes mentioned above. Use your card wisely to reap financial benefits for a long time.