In the age of paperless transactions, using a credit card is a common thing. These days’ banks offer various kinds of cards with different eligibilities, limits, and offers. Most credit cards have a loyalty-based system, wherein users earn points for the transactions that they do on credit cards. However lucrative these benefits of credit cards may sound and appear, a word of caution is a must. Here are 5 things you should know about cards that can help you use them wisely.
Know the features in detail
The first and the most important aspect of using a credit card is knowing its features thoroughly. Also check is the card is offered for free, what kind of annual charges are levied on it. One should be aware of the benefits in regards to one’s own lifestyle and usage. For example, a particular credit card may offer a 15% discount on n number of restaurants, but if someone who doesn’t dine out much buy such a card, won’t benefit much. Same is the case with airline tickets based or fuel based cards. Its advised to evaluate the benefits as per your usage and only then opt for the right kind of card.
“There may be cards that charge zero annual fees but may charge a surcharge on fuel purchase. If you use your card primarily to refuel your car, you may spend more on surcharges than what you would save on annual charges. So be clear about the purpose for which you would be using the card,” said Navin Chandani, chief business development officer, BankBazaar.com.
Make Timely Payments
Making timely payments beyond the minimum dues helps you in the longer run, not just to keep you away from debts and unnecessary interest charges but also in maintaining your CIBIL.
Repayment Capacity
More often than not, a person ends up spending more on the credit card than his spending capacity. Here starts the trap of very high-interest rates and bigger debts. Spend only as much as you can repay. Use the credit card only for convenience not to splurge.
Credit Utilization Rate Under Control
“Credit utilization is a key factor that influences your credit score. If you regularly maximize the credit card utilization limit and only pay the minimum amount due, this may be viewed as a sign of financial duress and undisciplined credit behavior, and will impact your credit profile,” said Sujata Ahlawat, vice president and head-DTC Interactive at TransUnion CIBIL, a credit information company.
So keep your card spend under limits, experts say that using 40% of your credit card limit is considered safe. Do not go beyond this limit.
Pay maximum amount possible in due time
Always try and pay maximum amount rather than the minimum amount permitted in the card bill. Paying only minimum amount leads to low CIBIL score and further issues of getting loans etc. sanctioned. Don’t distress yourself towards a web of debt.
So remember these tips and use your credit card wisely to avoid getting trapped in the debt system.
