5 Things You Should Never Do With Your Credit Card

5 Things You Should Never Do With Your Credit Card
Credit cards falling down are pictured in Rennes, western France on Feb. 5, 2013. (DAMIEN MEYER/AFP via Getty Images)
By Due

Not that long ago, applying for a credit card was a lengthy procedure. To actually obtain a credit card was considered to be a bit of a privilege. But things have changed significantly. Today, almost everyone holds a credit card. In this post, I will teach you five things you should never do with your credit card.

Credit cards can be fascinating financial tools.  They provide the holder with tremendous purchasing power, coupled with unmatched convenience and security—all wrapped in a couple of grams of plastic. However, it is advisable that you use your credit card with extreme caution to avoid substantial financial problems and ensure your financial security doesn’t take a beating.

Credit card issuers provide a particular amount of credit available for the credit card holder to use from time to time. All you have to do is strictly follow the terms of your credit card agreement. This usually includes paying on time, staying within your credit limit and not using your card to purchase illegal things or commit fraud. Of course, you have to repay the purchases made on the credit card, but the card issuer will provide you with options to pay the balance over time.

If you opt to pay over time, you will need to pay the minimum monthly amount that is due by a certain date each month. Otherwise, penalties will be applied for late payments. Additionally, you will have to pay interest accrued on the balance over a certain period.

When it comes to financial matters, your credit score plays a substantial role in your life.  Yet you're never provided with an instruction manual on how to use your credit card wisely.

In this post, we’ve outlined five key things that you should never do with your credit card. Use these to avoid potential financial hazards and ensure that you maintain a good credit score.

1. You Should Never Skip Your Credit Card Payments

There are always some disadvantages associated with the advantages that you enjoy. Credit card issuers lend you money (usually for a period of approximately 45 days, which is interest-free) and may give you rewards for the purchases you make.  However, they charge a fee of between 22-45 percent annually if you don’t make timely payments.

When you can’t afford to make your credit card payment within the due date, the worst thing is to let the bill go unpaid. Skipping the minimum payment will pave the way for some unpleasant consequences. Most commonly, the card issuer will take actions such as charging a late fee, or communicating the incident to credit bureaus, if you keep the bill unpaid for more than 30 days past your due date.

In addition, the interest is applied to the whole outstanding amount.  More importantly, it’s applied from the actual date of purchase, not from the start of the month. The late payment fees, coupled with the accruing interest rate can lead you into a debt trap.

What's more, if you fail to pay your bill on time for a certain period, rewards and incentives you earn by using your card (depending on bank and type of card) may be revoked.   If late payments become a persistent issue for you, take precautionary measures by opting for the right card and setting up automatic payments and notifications.

However, if you’ve missed only a single payment, consider paying the minimum amount due as soon as possible, and communicating with the creditor to request a refund for the late fee.

A photo taken in Marseille, France shows credit cards on Feb. 5, 2013. (ANNE-CHRISTINE POUJOULAT/AFP via Getty Images)
A photo taken in Marseille, France shows credit cards on Feb. 5, 2013. (ANNE-CHRISTINE POUJOULAT/AFP via Getty Images)

2. Never Max Out Your Credit Card and NOT Pay It Off

Every credit card comes with a certain credit limit—the highest amount that you can use without any penalty. Credit card limits aren’t expected to be maxed out.

Maxing out your credit card means that you’re utilizing more than you're paying off, which can lead to late payments. When these two factors are combined, it can trigger a credit card’s penalty APR, costing you a substantial amount of money as interest. It’s important to note that these interest rates are generally set at the maximum amount that a card issuer is able to charge you, reaching up to 29.99 percent.

A significant number of negative things can happen if you max out your credit card.

Some of the major ones are:
  • Your credit score will drop. A substantial part of your credit score—exactly 30 percent—is calculated on how much of your available credit limit you’re using. The closer you get to your credit limit, the more your credit score will get hurt.
  • You might experience a penalty APR. When you max out your credit card, it doesn’t mean that a penalty rate will be necessarily be applied. But it doesn’t help your chances. Card issuers typically generate a credit card’s APR only when a cardholder becomes defaulter for over 60 days.
  • Purchase decline. Once you reach your credit limit, only an increase in the credit limit or a payment will enable you to make further purchases. This may place you in a predicament if you have not taken the necessary measures.
Here are some key tips to keep yourself from maxing out your credit limit:
  • Develop an emergency fund. An emergency fund is a specific sum of money put aside in a separate savings account. Once you’ve developed an emergency fund, it will prevent you from relying solely on your credit card in emergencies.
  • Only utilize the card for exigencies. If you fail to develop the above habit, make sure that you only use your credit card for true needs.
  • Pay off your credit card as soon as you can. Develop a habit of paying off the card as soon as you make a purchase.
Keep in mind the above tips and have a proper plan in place to keep your balance within limit.

3. Beware of Sharing Your Card Information

There’s no arguing the fact that credit cards come with the enticing appeal of “buy now, pay later.”  However, properly managing your credit card and the subsequent bills can be more difficult than you anticipated.

With the advent of technology to make life comfortable, fraudulent activities have increased that aim to deceive credit cardholders. You may keep your wallet extremely safe, but fraudsters can find ways to utilize your credit card without giving you a hint of it.

For instance, if you make a credit card purchase by email or telephone, the merchant might pass the number on to a telemarketer. The telemarketer might call you and seek your interest in one of its favorite products as permission to charge your credit card.

Using a credit card needs stringent discipline, because swiping for transactions can lead to substantial financial hardship. There are some things that you can avoid entirely.  Not sharing your card information is definitely one of them. Do not share your credit card information. This information includes your card number, security code, expiration date or the username together with the password to view the account online.

You should refrain from using this information in a public place, as you never know who’s standing behind or close to you and taking notes.

A photo taken in Marseille, France shows credit cards on Feb. 5, 2013. (ANNE-CHRISTINE POUJOULAT/AFP via Getty Images)
A photo taken in Marseille, France shows credit cards on Feb. 5, 2013. (ANNE-CHRISTINE POUJOULAT/AFP via Getty Images)

4.  Avoid Taking a Cash Advance

Every financial decision significantly influences your credit score. You should remember that this score is crucial when you face any adverse financial situation. Taking a cash advance may seem to be a useful option in a circumstance when you require cash immediately. However, it can become quite expensive. You should use this as a last resort.

Some people believe that taking a cash advance on a credit card is similar to taking a loan and will negatively affect their credit score. In reality, when you take out a cash advance through your credit card, these advances are not reported to the credit-reporting agencies.

Though there are certain circumstances when cash advances can hurt the credit score, if you deal with them properly, they will have little to no effect. However, it’s important to note that cash advances normally come with greater interest rates, coupled with additional fees.  These can cause the outstanding balance on your account to grow fast, making it harder to keep pace with your monthly payments.

If you fail to make the payments on time, or the balance continues to increase, there can be a negative impact on your credit report and your credit score. Additionally, people who take out high amounts of cash advances are more likely to be considered as defaulters. High amounts of credit card debt will make you an undesirable candidate for banks and loans.

Ideally, you should try to avoid taking cash advances altogether.  Contact your local financial institutions for small loans instead.

5. Do Not Use Your Credit Card to Pay Your Mortgage Payment

Most of the time, paying your monthly mortgage amount through your credit card is not an option. This is because mortgage companies don’t encourage this method of paying. However, there are third-party companies who enable you to pay the mortgage installments that way. These services are quite expensive and this may lead you to pay much more than you normally would.

If you are able to pay your mortgage with your high limit credit card, you will end up paying a higher interest rate at the end of the month. The scenario may become even worse if you fail to pay down your entire account balance in a timely fashion. If you are able to find a way to circumvent the mortgage servicer and pay your mortgage with your credit card, it’s still not a wise idea if you don’t plan to pay off your complete credit card balance every month.

Mortgage loans are usually repaid between 15 and 30 years, depending on the mortgage terms. You are already being charged interest on the mortgage. Adding your mortgage payment to a credit card balance, with its additional interest, is an expensive option and a financial burden that’s best avoided. Using your credit card this way would also lower the available credit available on your card, which could in turn lower your credit score.

Conversely, when merging credit card debt with a mortgage, you will pay your credit card bill for the whole duration of the mortgage. Look for alternative loan options such as personal loans or refinancing. If you find it difficult to pay your mortgage installment for a particular month, try asking your mortgage lender for a grace period.

Alain Filiz shows off some of his credit cards as he pays for items at Lorenzo's Italian Market in Miami, Florida on May 20, 2009. (Joe Raedle/Getty Images)
Alain Filiz shows off some of his credit cards as he pays for items at Lorenzo's Italian Market in Miami, Florida on May 20, 2009. (Joe Raedle/Getty Images)

Things You Should Never Do With Your Credit Card: Conclusion

Avoiding debt is perhaps the best way to get prepared for a safe financial future. However, many people risk their financial freedom by landing in credit card debt. If you can use your credit card wisely, it can provide you with multitude of benefits. It can help with building credit and protecting online purchases. I have found it helps me purchase costly items without the hassle of carrying bundles of cash. Yet, when used carelessly, a credit card can act as a high-interest loan rather than a useful cash substitute.

It can be extremely difficult when credit card debt accumulates. To avoid this hassle, use your credit card judiciously or only for emergency purposes. In addition, when using a credit card, only purchase things you can afford.  Pay for all our purchases when the bill becomes due.

Simply put, credit cards can be highly beneficial instruments to build up credit. They demonstrate to future lenders that you are creditworthy. However, holding a credit card is a great responsibility and must be taken seriously. Don’t ever make the mistake of saying "I'll chalk out how to pay for it later."  That’s when you’re headed for trouble.

By Charles Brown

The Epoch Times Copyright © 2022 The views and opinions expressed are only those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.