There are plenty of credit card mistakes that Australians are making all too often, from only making minimum repayments and maxing out credit limits, to applying for too many credit cards in a short period of time. Discover some of the most common mistakes made by credit card holders and find out how you can avoid them.
Not knowing your interest rate
Unfortunately, not knowing your interest rate is all too common. Research undertaken by SocietyOne revealed that only 1 in 5 Australians are aware of their credit card interest rate.
Some credit cards are advertised with attractive introductory rates, but it’s important to recognise that these rates won’t continue for longer than the promotional period stated. Your repayments may be easy to manage when you first receive your credit card, but once the promotional interest rate ends, you may find that they increase each month. It’s important to find out what the default interest rate will be to accurately compare different credit cards and calculate your future repayments.
If you already have a credit card, you can find out what your current interest rate is by contacting your credit card issuer or by reading through your credit card’s terms. Knowing what your interest rate is makes it easy to compare different credit cards, allowing you to find the best deal for your circumstances. Credit card interest rates can vary greatly, with some offering rates as low as 8.99% p.a. and others sitting at 20% p.a. and higher. On average, a competitive credit card interest rate is considered to be anywhere between 8.99% p.a. and 14.99% p.a.
Only making minimum repayments
While it’s important that you meet the minimum credit card repayment each month, it can be a good idea to pay as much of your debt off as possible.
Mark Jones, CEO at SocietyOne, shared, “As interest continues to accrue month after month, choosing not to pay more than your minimum repayment could actually make managing your debts more difficult in the future.”
By choosing to pay more than the minimum, you can help to ensure that your repayment period is shorter, and the amount you need to repay in the long run is likely smaller too.
Although sometimes unavoidable for one reason or another, late monthly repayments may not only see you face additional fees and charges, but could also have a negative impact on your credit score. If you’re already finding it difficult to stay on top of your repayments, getting behind could make it much harder to catch up again.
Jones suggests, "Late repayments can have a real impact on your credit score and ability to borrow money in the future so it's important to stay on top of your repayment commitments. Setting up automatic payments or direct debits will help avoid any forgotten payment dates."
Maxing out your credit card
If your credit card has a decent credit limit, it may be tempting to max it out. It’s important to remember, however, that doing so may have some unwanted consequences. Not only does maxing out your credit card put you at great risk of fees and charges, but it may also affect your credit score. If possible, try to stay below your monthly credit limit, or, if paying off your credit card debt is no issue, look to have your credit limit increased.
Not reading the fine print
Just like any financial product, it’s important to familiarise yourself with the specific terms of your credit card. While reading the fine print may not be the most exciting task, it can provide a good understanding of how you should and shouldn’t use your credit card
In your credit card terms and conditions you can find out what actions incur different fees, any payment terms specific to your card, as well as any other conditions of use, helping you to make the best financial decisions possible when it comes to your credit. If you don’t have a copy of your credit card terms on hand, you can generally find them on your card issuer’s website.
Applying for too many credit cards
Each time you apply for credit, whether it is a credit card, personal loan, store card or even a utility, a credit inquiry is added to your credit report. Having a lot of credit inquiries over a short period of time may not only signal to lenders that you’re a greater risk but it may potentially harm your credit score too. If possible, try to only apply for one credit card at a time or when needed.
Taking too long to report a missing or stolen credit card
Although reporting a missing or stolen credit card can sometimes be a bit of a hassle, taking the time to do so as soon as you realise that your credit card is gone may save you headaches in the long run. The longer you wait to report your credit card, the longer thieves may have to go on a spending spree. If your credit card provider doesn’t know that your credit card is missing, they’ll assume that any transactions have been made by you and you’ll likely need to foot the bill for any spending.
*Insights used in this article were pulled from the Debt and Credit Poll - Page 7 commissioned by SocietyOne via NewsCorp/YouGov Feb 2020