Risk of Getting Credit Cards

Credit cards can be beneficial, enabling you to earn cash back rewards on purchases and
more. They are an opportunity to build your credit rating, which is useful when you need to
take out a larger loan. At the same time they come with risk, especially to those who have
a bad credit rating.

The risk of getting credit cards can be avoided if you reduce the risk of
making some of the most common mistakes.

Credit Card Debt

It is easy to borrow more than you can repay. Credit limits should be considered as loans,
which are extended by the credit provider. It is not free money that is readily available for
you to spend. The credit card balance comes with interest, which is payable. Every time
you add your balance and carry it over, you increase your interest and in turn, you have
more to repay. This makes it harder to get out of credit card debt.
When using a credit card you need to be very mindful of the money you use, ensuring you
are not buying more than you can afford. Setting a monthly budget and identifying how
much you can repay and not exceeding this amount can help you eliminate the risk of
credit card debt.

Missed Payments

Another risk of getting a credit card is missing a payment. Your payment history
contributes to your credit score and missing just one payment, or making a late payment,
will impact your credit score. Missing a payment also incurs a late fee, which is a penalty
fee which is applied to your account in addition to the APR payable.

Late payments are reported to consumer credit bureaus and can stay on your credit report,
which can make it hard to secure credit in the future. Setting up automatic payments is one
of the easiest ways to avoid the risk of missing a payment. Debit order payments are
offered by most credit card lenders, so you don’t have to keep a track of when the payment
is due, it comes off your bank account automatically.

Paying Only the Minimum Due

Credit cards come with a minimum payment due, but when you carry the balance over,
your interest increases. You will pay more in interest every time you carry your balance
over to the next month. Some credit cards come with high interest rates and even higher
rates if you have a bad credit score. If you can pay your credit card balance in full each
month to reduce the risk of paying a lot of interest in the long run.

Having Too Many Credit Cards

It’s not uncommon to get a note through the post that you have been approved for a credit
card, making it tempting to take advantage of the credit card offer. Having too many credit
cards comes with a high risk. While each credit provider will do a credit check, the more
credit cards you have, the harder it will be to repay them. It's not uncommon to find
yourself spiralling into debt if you have more than one or two credit cards.

Using Too Much of Your Limit

All credit cards come with a credit limit and the risk of getting a credit card is using too
much of that limit. Using too much of your credit limit can damage your credit score and it

is also harder to repay. It is recommended that you keep your credit card use below thirty
percent of the limit offered. Pay it back in full where possible to reduce high interest rates
and limit your spending each month.