February 9, 2024 · 5 mins read

Avoid These Common Credit Card Mistakes in India

Shloka Nayak


Credit cards are an important part of our financial landscape in India, offering a world of convenience, rewards, and security. However, when not managed responsibly, these tiny plastic cards can turn into mounting debt. In India, where the credit card market is rapidly expanding, it's crucial to be aware of the common mistakes to avoid while owning a credit card. Here are some common mistakes to steer clear of:

Missing Credit Card Payments

Late or missed payments can have a domino effect on your financial well-being. Not only do they cost you additional fees and penalties, but your credit score also takes a hit, making it much harder to secure loans or any other forms of credit in the future. A history of recurring missed payments can signal financial instability to lenders and block your chances of getting favourable credit terms. To prevent this, set up reminders or automatic payments to ensure you never miss a due date.

Withdrawing Cash Using Credit Cards

While they offer convenience for purchases anytime, using credit cards for cash withdrawals can be a costly mistake. Cash withdrawals often come with high fees and interest rates, making them an expensive way to access cash. Consider using your debit card at an ATM or withdrawing cash from your bank account to avoid unnecessary charges.

Lack of Budgeting and Overspending

A tendency to overspend and the lack of a budget is the perfect recipe for a debt trap. Overspending to accumulate rewards is also a bad habit. Credit card reward programs are designed to be attractive, offering cashback, airline miles, or other great incentives. However, chasing rewards at the expense of your finances is a beeline towards creating debt. Without a clear spending plan and an established budget, it's very easy to lose track of expenses and accumulate debt that becomes increasingly difficult to manage. Impulsive purchases and bad spending habits can strain your finances. This, in turn, can lead to a cycle of debt that can be challenging to break. Create a budget and stick to it diligently. Monitor your expenses closely and ensure they align with your budget to avoid overspending and accumulating debt.

Making Only Minimum Payments

While making minimum payments may seem like a temporary solution to manage credit card debt, it can prolong your debt repayment and increase the total interest paid. Minimum payments are designed to keep you in debt for an extended period, allowing the interest to accumulate and significantly inflate the total amount you owe. Always strive to pay your credit card bills in full. Clear your debts from smallest to largest to manage them in a phased manner.

Ignoring Credit Card Statements

People generally neglect to review their credit card statements. Keeping an eye on your credit card statements is crucial to spot any wrong charges or errors. Fraudulent activities can go unnoticed if you don't scrutinize your statements, potentially leading to a higher debt. Make it a habit to review your statements thoroughly and report any suspicious transactions immediately to your credit card issuer.

Maxing Out Your Credit Card Limit

While it might be tempting to use all of your credit limit, doing so can affect your credit score negatively and make it very difficult to manage your finances. Hence, it's wise to keep your credit utilization ratio low at 30%. This demonstrates responsible credit usage and positively impacts your credit score.

Improper Credit Utilization Ratio

Calling back to maxing out one’s credit card, cardholders must be aware of their credit utilization ratio. This ratio measures your outstanding balance against your credit limit, and a high ratio can negatively impact your creditworthiness. It signals lenders that you may be a risky borrower, potentially hindering your ability to secure loans or other forms of credit in the future. Maintaining a healthy credit utilization ratio is essential for a strong credit score.

Hidden Charges: The Unseen Burden on Your Finances

APR (Annual Percentage Rate) and interest rates are aspects that people fail to notice when it comes to credit card statements. These charges can significantly increase your burden, especially if you carry a balance from month to month. Before applying for a credit card, it's essential to be fully aware of the interest rates associated with it. Become aware of the APR, penalties and interest rates associated with your credit card to avoid unpleasant surprises and make informed financial decisions.

Excessive Credit Card Applications

Applying for too many credit cards in a short period can indicate financial instability to lenders. Avoid this mistake by carefully considering your needs and eligibility before applying for new cards.

Choosing the Wrong Credit Card: Aligning Your Needs with Card Benefits

The Indian market offers a multitude of credit cards with various features and benefits. Selecting a credit card that is not in line with your spending habits will cause you to lose out on benefits and may cause unnecessary charges. Consider your spending habits, financial goals, and lifestyle preferences when choosing a credit card. Evaluate the rewards programs, interest rates, and fees associated with different cards to find one that aligns with your financial situation and spending patterns.

Remember, credit cards should be used responsibly to enhance your financial well-being, not create a debt trap. To harness the benefits of credit cards without succumbing to financial burdens, it's crucial to recognize and avoid common mistakes that can derail your financial well-being. Keeping track of your credit score is essential for maintaining good financial health. It can help you understand how lenders view your creditworthiness and identify any areas where you can improve your score.

ZET(Previously OneCode) provides a free credit score calculator that makes it easy to stay on top of your credit score. Simply enter your personal information and get your credit score in minutes.

Practice mindful spending, stay informed about your card's terms, and make timely payments to reap the benefits of credit cards without falling into financial distress.