Know the mistakes to be avoided while using credit card


Over the years, the number of credit card users has been increasing by leaps and bounds in India. Along with this, the number of payment defaulters has also been increasing. Although credit card can help us during emergencies, it can also ruin financial health of the users. In this article, the author discusses the mistakes which the credit card users commit. We have to avoid these mistakes.

More and more Indians have been using credit card. It seems Indian people are enjoying easy access to credit through credit card. According to a report there are more than 2 crore credit card users in India. In 2015 -16, the Credit Card transaction in India crossed Rs. 1.9 trillion. The credit card transaction has been increasing at the rate of 25 per cent per annum every year. However, many credit card users are totally unaware of the basic details and rules of using credit card. As a result many of them fall in a debt trap from which it becomes difficult to recover. Every credit card user must avoid some mistakes. In this article we are going to discuss the mistakes relating to use of credit cards. These mistakes must be avoided to fully utilize the benefits being provided by the credit card.

Mistake number 1: Don't make a mistake of not paying credit card bills on time

Many people don't take the deadline of paying a credit card bill seriously. Many of us think it does not matter to make a late payment for a few days. However, it must be known that the delay of even a single day causes payment of penal rate of interest. Moreover, delay in settling the bills causes adverse effect on the credit rating of the user. Adverse affect in credit rating may hamper the chance of getting loan application approved in future. So, clear the credit card bills on time. Never forget this all-important principle.



Mistake number 2: Don't make the mistake of paying the minimum due

Many credit card users have the habit of paying the minimum dues and continue using credit cards. This is a very serious problem. As already stated, penal interest is charged on the outstanding dues. So if a user pays the minimum due, penal interest will be charged on the outstanding amount and over a period of time it (the outstanding amount) will snowball into a huge amount. Not only that, this will affect the users' credit rating. So, credit card users must come out of the habit of paying the minimum due. Make full payment.

Mistake number 3: Don't commit the mistake of using full credit limit

If we go on using more than 50 per cent of our credit limits, some of the lenders may become worried about our spending discipline and of our repayment capability. So, if the credit limit is Rs. one lakh, don't allow credit card transaction of more than Rs.50, 000/-. A low credit utilization ratio improves the credit score and will help sanction of loan in future.

Mistake number 4: Don't commit mistake of using credit card to get cash advance

Many credit card users have the habit of using credit cards to get cash advance. This is a potentially dangerous habit. Taking cash advance using credit card is not beneficial because in such case, the rate of interest may be much more than the normal rate of interest of credit card. Furthermore, withdrawing cash using credit card requires payment of extra fees. So, we must avoid drawing cash using credit cards.



Mistake number 5: Don't close old credit card account – instead close new account

If a multiple credit card user decides to close one or two credit card accounts and surrender the cards, he/she must remember to surrender comparatively new credit cards. This is because of the fact that if the credit card user regularly makes payment with old credit card, it helps in improving his/her credit rating. So, surrender current credit cards; keep older credit cards.

Concluding comments

Credit Card, no doubt, can be a great help at the time of emergency. But if we want to get the facilities being provided by the credit card, we must ensure not to commit the mistakes indicated above. Credit card has to power to help us during emergency but at the same time it can ruin our financial health. So, we must be very much aware of the mistakes which credit card users usually commit and try to avoid those mistakes.


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Comments

Author: DR.N.V. Srinivasa Rao09 Jun 2017 Member Level: Diamond   Points : 4

The mistakes that are not supposed to be done by a credit card holder are very well addressed in the article. The advantages of credit card can be availed only if you use it very cautiously. Generally what many people do is they spend more and more without knowing how much they are spending. If you have to purchase with cash or debit card you will know how much you can spend. But when it comes to credit card your purse or your cash balance in the bank will not come into. Only the credit limit of your card will stop you. So you should think about your repaying capacity and do the purchases.

Author: umesh10 Jun 2017 Member Level: Gold   Points : 3

Cautions and precautions in credit card usage are well explained by the author in this concise article.
Regarding the timely payment of dues I want to mention that sometimes a person forgets this and unnecessarily pays the late payment charges or penalties. To avoid this you can link your credit card to your savings bank account and authorize the bank to pay the due amount on scheduled date directly to the credit card company.
Another way is - do not wait till the last day of dues payment. You can very well pay a few days earlier. It is not going to make much of a difference but you will have peace of mind.

Author: K Mohan11 Jun 2017 Member Level: Platinum   Points : 1

I do appreciate the author for giving ample precaution and tips on how to handle the credit card to its full extent and how to protect from its bad use. What I personally feel is that when we are having banking facility and banking debit cards, why should one go for a credit card.

Author: KVRR11 Jun 2017 Member Level: Gold   Points : 4

Mistake number 3: Don't commit the mistake of using full credit limit.
The only disadvantage of using the credit card to the full credit limit is that there will not be any credit available until the bill is paid in full or part. The lender never comes to know how much credit you have. As long as the credit available is sufficient to cover the bill, it will be accepted. The credit rating does not suffer if the bills are paid on time. The defaulters' credit rating will suffer while renewing the card. But, as the author pointed out, it is advisable not to use the credit card to the maximum limit.



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