Credit card declined at checkout? 5 common mistakes that needs to avoid
Common Credit Card Mistakes: It is not uncommon for credit card companies to reduce customers' credit limits, and there are several reasons for this. But by using credit cards wisely, one can prevent this from happening. Otherwise, a reduced credit limit might negatively impact on shopping experience. Imagine the embarrassment of having your card declined at checkout. To avoid such situations, steer clear of these five credit card mistakes:
Missing Payments
According to the Reserve Bank of India, credit card defaults reached Rs 4,072 crore by March 2023. If you frequently miss payment deadlines, banks may view you as a high-risk customer, believing you may struggle to repay your debts. This perception could lead to a reduced credit limit.
Paying Only the Minimum Due
Many people carry forward their outstanding balance by paying only the minimum due. While this might be acceptable occasionally, habitually doing so can accumulate debt and potentially lead to a debt trap. This situation increases risk for the credit card company, prompting them to lower your credit limit.
High Utilization Rate
Using a large portion of your credit limit can be problematic. The utilization ratio—the percentage of your credit limit you're using—can negatively impact your credit limit if it's too high. For example, if your limit is Rs 1 lakh and you're consistently using Rs 80,000 to Rs 95,000, it signals to credit card companies that you're relying heavily on credit, which they may view as risky.
Holding Multiple Credit Cards
Some customers accumulate multiple credit cards, rapidly increasing their total available credit. For instance, if you have ten credit cards, each with a Rs 1 lakh limit, your total credit limit is Rs 10 lakh. If you frequently use these cards, banks may perceive you as overly reliant on credit and a potential risk, leading to a reduced credit limit.
Rarely Using the Card
Some customers either don't know how to use their credit cards properly or prefer not to use them. As a result, they rarely use their cards, which can lead banks to reduce their credit limits. Banks benefit when customers use their cards frequently, so low usage can prompt a limit reduction.