Getting your first ever credit card can probably be one of the most exciting phases in life. However, if you are a first-time user, chances are, you will get confused with the various norms surrounding card usage such as billing cycle, late payment fee, interest rates, credit limit, etc. If you do not use your credit card right, it will take a toll on your credit score and this will in turn have an impact on your future loan approvals. This is why it is very important to learn how to use a credit card the right way. In this article, we will take you through some of the most important tips on credit card usage.
Firstly, Apply For The Right Credit Card
Before applying for a credit card it is very important to weigh the pros and cons and see what works best for you depending on the type of expenditure you have. There are many portals that will help you compare and apply for credit cards. For example, the BankBazaar Mobile App will help you choose the right financial products like Credit Cards and also help you get a faster approval. Once you have the right credit card in hand, it will pave the way for a better financial future.
Know Your Credit Limit
Most first-time users do not know what their credit limit is and, chances are, they may end up maxing out their credit limit at some point or other. For first-time users banks usually do not grant a very high credit limit and this will increase over time with good spending behaviour. Ideally, a card holder should spend only around 30% to 40% of the credit limit. So, if the limit is Rs.1 lakh, the customer should spend only 30% of it, which works out to be Rs.30,000. In fact, the lower the utilization of credit, the better it is.
Don’t Get Too Carried Away
It can be quite an exciting period when you have just got your own credit card. It can get very tempting to splurge or buy that one thing that you have always wanted to. It is easy to go on a full-fledged shopping spree, max out credit limit and then regret. This is why it is very important to inculcate a sense of discipline and not get too carried away from the very beginning. Remember, you are essentially borrowing money on your credit card and it is a type of loan. You will have to repay the same and will be penalised if you do not.
Pay The Total Amount Due
Avoid falling into the trap of paying the minimum amount due. Pay off your bills as fast as you can, in full. Debt can be dangerous. Minimum payment will attract a heavy interest rate and you will end up paying more, adding up to your already increasing debt. Most banks usually charge a hefty interest rate and this will keep adding up to the total outstanding. The trick here is to use your credit card for only what you can afford.
Create A Budget For Spending
Just because you own a credit card now, it does not mean that you can go overboard with your spending. It is very crucial to have in place a spending plan and more importantly, to stick to it. So, if something does not fit in your budget, do not use your credit card to buy it. This will again put you in the debt trap. Using a credit card gives you a lot of freedom but it is also important to use that leverage with a lot of responsibility.
Avoid Cash Withdrawal
It is important to remember to avoid withdrawing cash or taking a loan or cash advance on your credit card. This comes with a very high interest rate and other fees and charges. This is nothing but another type of debt trap, so avoid it. The best thing to do is to live within your means.
Make Payments On Time
Bills should always be paid on time and any late payment will attract a heavy penalty. Not just this, if you do not make payments on time, you will be considered a defaulter and this will take a toll on your credit score in the long run.
Do Not Share Card Details
It is very important to be extra cautious with your credit card. Do not give out any type of confidential information such as pin details, etc. All credit card-related information should be kept private at all times to avoid any type of misuse. Also, be cautions when you are using your card online.
Avoid Multiple Cards
Having too many credit cards is not a good idea. Though you will be able to apply for more than 1 credit card easily, it is best to avoid it for as long as you can. Not only will this affect your credit score but also jeopardize your budget and make you spend more money overall, month-on-month.
Finally, it is best to go for a credit card that comes with a no annual fee feature. This will help you save money. On the whole, it is very important to know how to use your credit card wisely. If you use the card the right way, it will work to your advantage, if not, it will only work against you.