Owning a credit card is a wonderful feeling. It gives you a certain sense of financial freedom and keeps worries at bay. However, a lot of people overlook the responsibilities that come with it. By using a credit card irresponsibly, you risk not only building a massive debt but also hurting your CIBIL score in the process.
The following are 5 of the most important pointers to keep in mind when using credit cards:
1. Avoiding Minimum Payments
Minimum payments are one of the most popular features of plastic money. They allow you prevent penalization if you pay just 2% of the total amount of a bill. However, the remaining amount is carried over to the next month and become debt. It can hurt your credit rating and also stress you out due to financial obligations. So, it’s far better to control your shopping cravings rather than dealing with massive debt that has the potential to even increase over time if you are not careful.
2. Keep Credit Utilization Low
Your credit card may have a limit of Rs. 50,000 or Rs. 1 lakh. However, that doesn’t mean you can spend up to Rs. 50,000 or Rs. 1 lakh without any repercussions. If you are spending more than 35% or 40% of the credit limit, then you can damage your CIBIL score and hurt your chances of getting personal loans or home loans. This is because it makes it look like you are “credit hungry” or unable to manage your expenses properly which is why you have to rely on credit cards more often than not.
All personal finance experts recommend that’s it’s best to use your cards in moderation. For instance, if your credit card limit is Rs. 50,000 and you are spending more than Rs. 17,500 or 20,000 per month, then you should hold back and limit the usage immediately.
3. Making Use of Special Offers and Cashbacks
A credit card isn’t just helpful when you have to buy expensive items on EMI basis or pay for your purchases conveniently, it can be used to save a lot of money too.
All the top credit cards run promotional offers from time to time especially on the popular ecommerce stores. You can easily save 5% to 10% on your payments by purchasing at the right time.
4. Use the Right Card When Traveling Overseas
It may seem like a good idea to use your credit card when you are in a foreign country as it’s convenient and you don’t have to convert your local currency for most part of your stay. However, you might end up inflating your bill to an unbelievable level. This is because when you use a standard credit card outside of your home country, then a massive foreign transaction fee (2% to 4%) is levied on each transaction. If you use the card for withdrawing cash, then you may need to pay even higher fee. However, you can easily prevent this problem by using the right type of credit card.
There are a number of credit cards that are especially designed for travelers. Most of these offer a 0% transaction fee, travel miles, and a variety of travel-related perks. Some of the most recommended travel cards are as follows:
• American Express Platinum Travel Credit Card
• Axis Bank Miles & More World Credit Card
• Air India SBI Platinum Card
5. Pay Your Bills on Time
If you don’t want to hurt your CIBIL score, then make sure you pay every single bill on time. The more payments you miss, the lower your chances become of getting a personal loan or home loan. This is because most banks want the borrowers to have a history of timely payments as it helps them to trust them easily.
To make sure your payments are on time, you use an expense or budget tracker app that can remind you when the payment date is coming closer. If you are repaying a loan, then you can ask your bank to deduct the EMIs automatically from your account every month. This is made possible with the “auto debit” features that all the top banks offer.