So, you got your first credit card, great! Now what? How are you going to use it?
Using a credit card seems like the simplest task ever. Just take out the card from your wallet, swipe, enter the pin and done. After that pay the bill once it is generated. Isn’t it?
Correct, but this serves the purpose of just ‘getting credit’, and not ‘using the card wisely’.
There are some things which you should keep in mind always if you use credit cards. If you follow these points, you can exploit the benefits of your credit cards to the maximum.
- Make yourself familiar with the common credit card terms described in this post.
Never share your card details such as Card number, CVV, expiry and OTP with anyone. Even if the person claims to be a bank official and asks for any small details, ask them to mail you using their official email ID and verify the authenticity of the email sent by them.
- Go through all the transactions in your card statement once it is generated. If you find any charges which you are not aware of, clarify it with the card provider.
Pay your bill before the due date.
- Keep your credit utilization low. Try to keep it below 30%, this will not show you as ‘credit hungry’ when your credit score is calculated.
- Always accept credit limit increase, if offered by the bank. If your card has a limit of Rs 1 lakh and you are using Rs 50,000, this is a 50% credit utilization. But if your card has limit of Rs 2 lakh and you are using the same 50,000, your credit utilization is 25% only.
Never buy anything on EMI unless it a no-cost EMI (without any extra charges like processing fees etc) or you have no other option. The banks charge really high interest rates (12% – 18% pa) on the depreciating principle amount.
- Don’t do impulsive purchases just because you are getting something at a cheaper price using credit cards. Remember, if you are buying something worth Rs 10,000 (which you don’t need) even for 40% off, you are not saving Rs 4000. You are actually spending Rs 6000. Never use your credit cards for any purchase you’d not do using cash or debit cards.
Never carry a balance on your card. Even if you HAVE TO, pay at least the minimum amount due so that your credit score is not impacted.
- Never use your card to withdraw cash until its an emergency.
Withdrawing cash using credit cards incurs cash advance charge, which is too high for most of the cards.
- Select your card based on your spending category. For e.g., if you are a frequent traveler you should look for travel credit cards. If you spend more on some specific brands like Amazon, Flipkart etc, get their co-branded cards. You get more cashback on these credit cards generally.
- Don’t close old cards. While calculating the credit score, your credit age also plays a role along with other factors. Older the credit card is, better it will be for your credit score. However, this does not mean you should not close a card and pay its annual fees even if you are not using it at all.
- If you hold multiple credit cards, keep their bill cycles in sync so that you don’t have to worry about paying the bills whole month.
- Keep a track on your credit score. Credit information bureaus provide at least 1 free credit enquiry per year to the customers. You can check your free CIBIL score here. Additionally, some banks such as HDFC bank provide the facility of checking free CIBIL score for their account holders.
- Keep a track on your expiring reward points. Some credit cards come with an expiring reward point system which can vary from 1 year to 3 years.
- Keep a track on bank promotional offers. Many banks send user specific offers on email and SMS which are ignored by us. Some of those offers are really good and you won’t want to miss them.
Keep these points in mind and you’ll become those customers who won’t let the banks earn by charging higher interest rates and penalties and just use the rewards. Banks really hate these kind of customers (Isn’t that great? 😉😉)
Credit cards are the one of the best things in the world and using them wisely can easily reduce your total cost of living with the help of rewards and cash backs. I’ve been able to save more than 2L Rs in the last 3 years just by using credit cards properly.