How bad are those small credit card mistakes?

Written by: Andrew Fisher
Credit cards give millions of consumers access to finance and they can help you build up a respectable credit file if used wisely. But you can make mistakes using them...just how bad are they?

Around 32 million adults – 60% of the population – own a credit card. The reasons to have a credit card generally outweigh the reasons not to.

Not only do they provide access to small amounts of finance when needed, with the ability to pay the amount off in monthly instalments, they can also benefit your credit profile.

When you get a credit card, it provides you with the opportunity to show you are a responsible borrower and in turn improve your credit score – as long as you use it wisely. If you don’t keep up your repayments or go over your credit limit, it could impact on your financial situation.

These are five common credit card mistakes that might seem small but can have more of a financial impact than you would initially think…

1) Withdrawing cash from an ATM using your credit card

You might not realise it but withdrawing cash on your credit card, rather than your debit card, has more of an impact than just the 3% charge.

Credit card withdrawals from ATMs are also recorded on your credit file. When applying for a loan or another credit card, lenders view the use of your credit card to access cash as a sign you don’t have money in your bank account for essentials.

They like borrowers to be responsible with money, so may be wary of your future credit applications.

2) One missed credit card payment

Missing one credit card payment may not seem like a big deal but this can have more of a long-term impact than you realise. Information about your payments history is recorded on your credit report for up to seven years, suggesting to potential lenders you are unable to manage your finances.

This can have an impact on your credit score and result in being turned down for future credit – even if your finances are perfectly healthy.

While it is best to pay your credit off in full each month, it’s a good idea to set up a direct debit and try to cover more than the minimum payment each month. That way your credit file will show good borrower behaviour as well as avoiding a missed payment.

As your payment history has a big impact on your credit score, it is also important to remember to pay all of your bills on time. Lenders want evidence of stability.

3) Going over your credit card limit

Most of us will have an overdraft facility and may have even exceeded the limit. While the bank stops you from using your account until the negative balance has been cleared, it will also begin to add daily charges.

It’s the same for your credit card limit. If you go over it, your provider will begin to charge you and this will leave a footprint on your credit file.

4) Keeping unused credit cards

Your wallet or purse might be full of credit cards, but that’s okay because you don’t use them, right? Wrong, keeping unused credit cards can be perceived as a fraud risk. Some lenders may consider the credit limits available to you as well as your outstanding debts, so make sure you only keep cards you use. Keeping hold of these unused cards can damage your credit rating.

However, if you only have one credit card, think twice before closing your account even if you don’t use it. The longer the account is open, the better your credit score will be.

5) Applying for a succession of credit cards

Remember, when applying for a credit card, keep applications to a minimum. You have a credit footprint and making several credit applications within a short space of time can impact your credit score.

Using a soft search facility will tell you the likelihood of being accepted for a credit card without effecting your credit rating. If you are turned down for credit, check your credit file and address any issues before applying with other lenders, as rejected credit applications can also have an adverse effect on your score.

Andrew Fisher is managing director of Freedom Finance

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