17 Credit Card Mistakes To Avoid In Dubai UAE
UAE is a safe haven for tourists, businessmen and people who like to strive and thrive in a modern society. And again, it has a geographical advantage too; located between Asia, Europe and Africa. Dubai has become the leading financial centre for the region. Dubai has made its mark in the world economy by building world’s tallest man-made structure (the Burj Khalifa), Dubai Mall-the largest shopping centre in the world and Dubai Airport is the busiest airport in the world.
As the country is growing and expanding rapidly, so is the need for credit. Banks and credit issuing companies have placed themselves strategically to meet this surge in demand for credit, especially credit cards.
Credit cards offer the most convenient way to purchase goods and services and also easy availability of free credit (at least for a short period). But many a times, the same credit cards can transform into a burdensome debt and a long up-hill battle to repay that debt if they are not used efficiently.
In this article I am going to discuss problems relating to credit card usage and how to avoid those.
17 Credit Card Mistakes:
#1. Free Money Attitude
Yes, credit card is free credit but for a ‘SHORT PERIOD‘. Often we tend to forget this and carry this attitude of ‘free-credit’ until we find ourselves in credit card debt spiral. Always remember that when you are swiping your credit card, you are using borrowed funds and they are free only till your next billing cycle. So when you use your credit card for purchases in UAE, always calculate how much you can afford to pay back and when. This conscious effort will help you from spending unnecessarily and save money on interest and fees. Credit card is not a spigot of cash that you turn it on and money flows endlessly. Borrowed money has to be repaid and banks will ensure that you repay them. If you delay or default, the consequences can be dire.
#2. Sticking To Only Minimum Monthly Payments
Believe me, making only minimum payments on your credit card balance can ward-off worries temporarily but in no time, you will find yourselves in a financial mess. By making only minimum payments on your credit card, you not only end up paying more interest but also you will take a long time to pay off your credit card debt. As far as possible pay your credit card bills in full every month. If you can’t afford to clear your bill, pay the maximum possible so that you reduce the time to pay off your debt and also save money on interest.
#3. Waiting For 11th Hour To Make Payments
Yeah, you might say ‘ it just takes a few clicks on my computer and my credit card bill is paid!‘ or you might say ‘ its a 5 minute drive to my credit card machine‘. Agreed. But this waiting-for-last-minute thing to pay your credit card bill can cost you dearly. Just imagine if your computer goes bust or you are stuck in traffic or your credit card machine has gone bust. Late payment even by few hours could be counted as over-due by 30 days. This can take the form of late payment fee and also increase in your interest. So avoid all these unnecessary hassles, pay your credit card bill in time.
#4. Cash Advances on Credit Card
Treat your emergency finance requirements and advance facility on credit cards as enemies. Never allow them to meet. Rather borrow from a friend or take a personal loan from bank if the requirement is dire. When you take a cash advance on your credit card, the credit card banks charge a higher interest rate than your normal rate, then you have transaction fee for advance and finally, there is no grace period. That means the meter is ‘on’ immediately. So you have everything to lose. So refrain from taking cash advances on credit cards. If you are left with no option, then try and repay it as soon as possible.
#5. Ignoring Credit Report And Credit Score
I have learnt from sources and news reports that Etihad Credit Bureau , headquartered in Abu Dhabi, laucnhed in November 2015, maintains in its data base, credit history of individuals and retail borrowers. So whenever you apply for a loan or a credit card, banks can get a report from the bureau and assess your financial standing and decide on whether to honor your credit card, loan or any other financial facility.
This access to your financial history can affect your future needs of finance in the country. I am sure, like in United States, UAE will develop an elaborate system of credit scoring taking into account factors like your payment history, total debts, credit utilization, length of credit history , new credit, credit mix and so on. So a resident in UAE might have to work towards building a pristine credit record to get a good score which qualifies him for various kinds of credit facilities.
#6. Too Many Credit Cards
Well, there is no rule of thumb to decide on the exact number of credit cards one should have in UAE. But according to me, have only as many as you can handle effectively and efficiently. This might vary from person to person. There are rewards credit cards, airport cards, travel air-miles credit cards, store credit cards and so on. You know how well you can handle your finances. Accordingly, decide on how much you can stretch financially.
Then again, having too many credit cards increases your available credit on hand. If at all, Etihad Bureau adapts a system where in your utilization ratio is taken as a factor for calculating your credit score, then you need to be careful. In United States, an utilization ratio is a ratio of your balance on credit card to available credit limit.
For example, if your balance on a credit card or used credit is AED 400 at the end of billing cycle, and if the limit on your credit card is AED 1,000, then you credit utilization is 400/1000*100= 40%.
I don’t know what factors Etihad Credit Bureau takes into account while calculating your credit score, but I am sure you utilization ratio would be one of them. So try and maintain your credit ratio below 35%. If you have multiple credit cards, then you do the math by adding up all the balances and dividing by total limits of each card.
#7. 0% Introductory Interest Rates
Free introductory interest rates for a certain period, specially on balance transfer credit cards can be enticing. Usually people go for balance transfer credit cards when they need to consolidate their credit card debt. For example, If I have a huge credit card debt on a credit card and at the same time, I am paying a very high interest on that, then balance transfer credit cards can reduce my burden by allowing me transfer this balance to 0% intro interest credit card/cards. That way if a credit card allows me to repay my credit card debt without any interest for a certain period, I will save a lot of money that would otherwise been eaten up by interest.
But you need to be careful with these 0% interest credit cards. They might give you an introductory offer but once that initial period expires, the credit card company might charge you a higher interest than other basic credit cards. Or if you fail to make timely payments or miss on making your payments on debt, your initial offer could be revoked and you will be left with a high interest credit card. Then again, there could be balance transfer fee too.
Of course there is a lot to benefit from balance transfer credit cards but you need to carefully analyze your situation; know what are the fees involved, consequences of failing to adhere to certain conditions and so on.
Credit card companies have to survive and to survive, they need to make money!
#8. Ignoring The Fine Print
Fine print is a binding agreement between you and the credit card issuer in UAE. So when a credit card is issued to you, you agree upon the terms and conditions of fine print. The credit card fine print contains details about interest rates, rewards, the fees and how to avoid them and other terms and conditions. Fine print can be like a survivor guide, reading which not only gives you a clear idea as to how to handle your credit card effectively and efficiently but also will help you to avoid unnecessary fees and penalties.
#9. Purchasing Everyday Items With Credit Card
I guess, most of us in UAE are guilty of this. We go on swiping our credit card anywhere and everywhere as if it is a magic wand. It is still ‘OK’ to use your credit card for all kinds of purchases provided you pay your credit card bill in full every month. But if you are the kind who likes to carry a balance month-on-month, then you are paying far more for basic necessities and utilities, which is not worth it.
If convenience is your goal, then you can use your debit card. Because, it doesn’t make sense to pay interest on items like groceries, water and electricity bills. You might as well pay cash.
#10. Ignoring Monthly Credit Card Statement
A credit statement is a monthly summary of transactions that you made on your credit card, account balances, credit limits and other important things. Reading a credit card statement is not rocket science. It is important that you go through your credit card statement every month. Even though it is not easy to steal your credit card information now that Chip-and-pin credit cards are introduced in UAE, but you need to keep a close watch on your credit card transactions. You can easily trace any fraudulent activity going on and also, you can easily counter any wrong charge/charges. It keeps you updated on important changes and rest assured, you will never miss a due date.
The literal meaning of splurging is “spend (money) freely or extravagantly”. Plastic money can easily urge one to spend on things that are not required. The self-assurance that, ‘i can always pay later’ is very dangerous. This attitude of ‘free money’ can easily land one into great trouble. Credit cards give you purchasing power beyond what you can afford and it does play a psychological games. Fighting these urges can be very difficult but if you can control those, then you have learnt a very important lesson in financial management. The pleasure of unwanted luxuries wither sooner than you know and you will be left with that sour feeling of having to pay for those luxuries for a long time to come, that too a much higher price.
#12. Lending Your Credit Card
It is ‘OK’ to lend you credit card to your wife! (I don’t want the wrath of wives). But don’t allow anyone else to borrow your credit card for any reason whatsoever. When you lend your credit card, you lose control over the purchases the holder of credit card makes. You cannot trust anyone with your credit card!
#13. Delaying Reporting Stolen Or Lost Credit Card
When you come to know that your credit card is stolen or if you have lost your credit card, report it immediately. Do not wait till the next full moon day! Fraudsters know that they have very less time on hand and they will try to take the maximum benefit out of your credit card, probably max it out. The best action that you can take is to call the credit issuing bank’s representative and ask him to block your credit card immediately.
And again, if you see any transactions on your credit card statement that you think are not made by you, you need to report, clarify and verify them immediately.
#14. Maxing Out Your Credit Card
Maxing out your credit card means fully utilizing your credit to the limit. The danger is that you might go beyond your credit limit in which case the credit issuer might charge a over-limit fee and also might increase your interest rate. As per my predictions, as discussed above, your utilization ratio might play a major role in determining your credit score. A high utilization ratio might signal you as a high–risk customer, slimming your chances of honoring your future credit requirements.
#15. Ignoring Fees
There are many kinds of credit card fees which I will deal with in a separate article. But as much as possible, you need to avoid all possible fees related to credit cards. Some of the fees relating to credit cards are foreign transaction fee, balance transfer fee, purchase fee, cash advance fee, over-limit fee, late payment fee to name a few.
#16. Spending For The Sake Of Rewards
Credit card air-miles, rewards, perks and privileges are very enticing. Free tickets, discounts and deals are great only if you pay your credit card bills in full every month. But if your go on spending just to rack up points and air-miles and carry a credit card debt incurring high interest, then those points and rewards weigh far less and are not worth it.
#17. Carrying A Balance
As far as possible, try and pay your credit card bill in full every month. But if you can’t afford to pay the full amount, pay the maximum possible so that you clear your credit card debt as soon as possible. But don’t make it a habit to carry a balance. Imagine, every month you spend and the interest keeps compounding on the added balance taking you farther and farther into future from repaying your credit card debt. The longer you take to repay your credit card debt, the more you end-up paying. Ultimately, you might find yourself in a credit card debt spiral which can have dire consequences if your default.
Credit cards improve our lives in many ways. We do not need to carry a wad of cash, the payments made by credit cards are protected and most of all, they provide a great deal of convenience. But if plastic money is not handled intelligently, the same credit weapon can become a self-destructing tool or a termite which will corrode your finance.
Simple things can save you a great deal of money and also save you a lot of trouble.
Which other credit card mistakes do we commit and how to avoid them? How do you handle your credit cards? Let me know in comments.