Smart way to use credit cards by new holders
Credit card is a useful tool for spending if used in a proper and responsible manner. The payment schedule needs to be adhered to and paying just the minimum amount can lead to a debt trap.
Should you use a credit card or not? The answer depends on how you use the credit card? If you understand the card and use it smartly, then a credit card can be beneficial. However, if you indulge in unnecessary spending just to show off, make minimum payments on the due date, it can become a trap.
6 smart ways to use your credit card
Obviously, you’d want to be a smart user and for that, you should do these six things.
Check credit limit
Pay attention to the credit card’s credit limit before using it. Never fully utilize this limit because it will result in a high Credit Utilization Ratio (CUR). CUR means how much of your credit card’s credit limit you are using.
For example, if your credit limit is Rs 1,00,000 and you have spent Rs 60,000, your CUR will be 60%. This is considered as high ratio. CUR should ideally be kept below 30%. Keeping a high ratio consistently will harm your credit score and make it difficult for you to get loans in the future.
Look for rewards
Secondly, pay attention to the card’s Rewards programs. How many reward points are you getting with each swipe? Where can you use these points? Check these things in the reward program.
Check Annual Percentage Rate
Third, the interest rate and fees are also crucial. Always pay the outstanding bill of the card, avoid paying the minimum due. If you pay the minimum due, you will have to pay a lot of interest on the remaining bill. The average interest rate is currently 3.5% per month. Besides this, there are many other charges that can increase your card’s cost. Check the Annual Percentage Rate (APR) for all these charges in one place.
Make use of card offers & benefits
It is also necessary for new users to pay attention to offers and benefits. These include joining bonuses, fuel surcharge waiver, insurance cover, online and offline shopping, discounts, etc. Using credit card benefits and offers correctly can save you money and maximize the benefits of the card.
Avoid EMI payments
Avoid converting your purchases into EMI every time. There is interest with the EMI option and it can be higher than expected. Therefore, convert a costly purchase into EMI only if you are unable to pay its payment until the bill arrives.
Lastly, check the card statement from time to time. Many times the payment is not completed, but the balance is deducted from your card. Sometimes incorrect charges are also collected. By checking the statement repeatedly, you will be able to find out about any such mess and avoid paying extra money.