Common credit cards usage mistakes

7 December 2009

Using credit cards is as much as part of a person's daily financial routine as using cash, with credit cards presenting themselves as a convenient and helpful way to build up a good credit rating for future loan applications while giving a person access to items online.

In fact, a recent debt study by Galaxy Research for credit cards security industry company Veda Advantage found that of the 16 per cent of all Australians that are classified as suffering financial difficulty, 16 per cent of them consider credit cards as their option to escape financial deadlines.

While credit cards are a necessary part of a person's personal and business life, they do pose a certain element of risk involved if careful management is not followed. It can feel as if a credit card or several credit cards can quickly spiral out of control once the monthly repayments are missed or late, with the subsequent charges and late fees easily reaching the same amount as the repayment itself.

At the heart of using credit cards is acknowledging and staying aware of three central factors: usage, interest rates and repayments.

Usage

The frequency of which you use your credit card should always match your income and financial budgeting restraints. While some people use their credit cards for "emergencies only", the majority of people will sue their credit card for daily expenses, rather than using cash. This is great - if you can afford to pay it back at the end of every month. If you overspend on your credit card even once, you may find that you will always be playing catch up every bill after that, not getting ahead but merely making the minimum repayments, which is usually just monthly interest rates anyway.

What's more, be cautious of how many credit cards you have. This is crucial for several reasons, ranging from your credit rating to keep track of your finances. For starters, if you have more than, let's say three credit cards, are you really sure that you will be able to repay every card every month? Additionally, people with multiple credit cards will often find they have a difficult time when applying for personal loans at a later time, with their numerous credit cards viewed as a credit risk. This is especially true if there were issues with making repayments on time.

Interest Rates

The issue of interest rates is by far one of the hottest when it comes to the world of finance and borrowing, with different credit cards using different rates to try and attract new customers on to their card. Perhaps one of the most popular interest rates ploys for credit cards is the "introductory rates". When referring to "introductory rates" this means the rates offered to a new credit card when it is transferred from another lender, almost a reward for talking your business elsewhere.

While this can be an excellent option for many people, it is important to do your research before committing to a new card to be fully aware of the rates AFTER this introductory period. Most credit cards will offer either a 6 or 12 month introductory period which has very low interest rates attached, giving a great opportunity to pay off existing debts without the hassle of high rates attached. However, it is what happens after the introductory period has passed that are the cause for many costly financial credit cards mistakes. Suddenly you may find that your existing debt may have an interest rate that has jumped from a low interest rate of 8 per cent to 18 per cent, meaning you will be paying far more every month that the debt is not cleared.

Repayments

You should also be mindful of the interest rates that are attached to any and all late repayments. If you are more than 30 days late for a repayment you may find your debt attracting interest rates above 20 per cent.

Granted there are times when a late payment will happen, sometimes a few days here or there, but if you are consistently late this will show up on your credit rating and will negatively impact on any future loan applications.

CreditCards.com.au is an Australian owned information provider on Australian credit card products. Please use our Compare the Top Ten Credit Cards table to find the right credit card for your financial needs.

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