Know how to use credit card optimally


Credit card can be used for various purposes. It may really advantageous in certain circumstances. At the same time, credit card lures its users to the debt trap. So, to enjoy the advantages of credit cards, the users must follow some tips. Know these tips from the author.

Nowadays people extensively use the credit cards for many purposes. It is very convenient in various occasions including emergencies. At the same time, extensive use of credit card by users brings a very real risk of falling into the debt trap. Credit card users must be very careful to avoid falling in a debt trap. This article discusses how to choose a good credit card and also how to optimally use the card.

Check the fee of the credit card

Credit cards may have various fees like joining fee, annual fee, late payment fee and cash advance fee. At the time of choosing a particular credit card, the prospective users must shortlist those cards which have no annual fee and joining fee before considering other relevant factors.



Always remain within your credit limit

This is very important. A credit card user must always remain within his credit limit. Otherwise, he would be charged with a hefty an over limit fee. The experts always advise to choose a credit card which allows a credit limit of at least three times more than what the user is likely to spend in a month. It is very important to keep the credit utilization low.

Pay in full before the due date

The credit card users must pay the due amount completely well before the due date. If this is done, then interest will not be charged on the balance amount and the user will be able to avail the benefit of grace period which the credit card company offers. A low credit utilization ratio improves the credit score and will help sanction of a loan in future.

Check the EMI facility of the credit card which yo chose

If a credit card user purchases a costly item like television or refrigerator, he may like to use the credit card to pay the amount in EMIs. In such a case, it is necessary to understand the EMI facility, the processing charges and other charges. The experts always advise to negotiate the processing fees in the cases of EMI purchase.



Don't use a credit card for reward points

The credit card users must not use credit card excessively for reward points. Reward points and cashback facilities can be enjoyed only when the due amount is paid within the time. If the user has to pay fine for late payment, the credit points and cash-backs won't have any importance. While using credit cards, the users must remain conscious not to fall into this trap. Don't purchase useless products and visit restaurants for the sake of cash-backs or discounts.

Build the credit score

If the credit card users default on their loans or payment of credit card dues, their credit reports would definitely have negative reports. In that event, they would face difficulty in getting loans. The financial experts advise users to opt for secured credit cards. It is relevant to state that a secured credit card is secured against a fixed deposit from a bank.

Final few words

Credit card can be a boon or bane to the users. It entirely depends on the individual user. The credit card must be used as a credit mechanism and a source of credit during emergencies. But the users must pay the credit card bills in time to fully enjoy the advantages of the credit cards.


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Comments

Author: Umesh31 Oct 2018 Member Level: Diamond   Points : 7

A nice article by the author explaining the subtleties of using a credit card optimally. It is a very useful article for all those who are using such cards.

A credit card is one of the most amazing and well-tailored financial instrument. It is being used by a large number of people world over. Now slowly its use is going down as people have started to use debit cards at merchant locations. In debit card the payment is instant and the facility of about 45 or fewer days delay period for making payment is not available. At the same time, they do not have hassles of tracking your credit card and paying the outstanding in time etc. As any late payment attracts high penal interest.

Those who wish to go for a credit card should note that for basic cards nowadays there is no annual fee. Even if it there, you insist on its waiver and they will oblige. Another thing is time to time the banks join hands with online sellers and announce attractive discounts on certain merchandise purchased through these credit cards. So that can also be availed sometime.

Some heavy users of credit cards keep money in advance in their credit card account. This is done by pre-paying some lump sum amount depending upon their monthly usage and avoid the hassles of keeping track of the last date of payment. They use their credit card just like a debit card. The only difference is that the account where a debit card is linked gives you some interest on your outstanding balance. But credit card companies do not give that because of obvious reasons for providing an optional delay period for your payments.

Author: DR.N.V. Srinivasa Rao31 Oct 2018 Member Level: Platinum   Points : 7

The credit cards are playing a very important role in the modern world. They help to maintain the purchase capacities of the people. These days we will find very rarely people without a credit card. But the way we use our credit cards decides our financial health. One should never go for purchase as there is a card with a credit limit. But we should assess the repaying capacity also. If one fails in repayment in time the amount to be paid as interest will be very high. But use the credit card wisely and systematically. It will help us in maintaining the financial position correctly. Many times I have seen many people unnecessarily going for the purchase of items with cards and getting defaulted. This is a very unwanted trait. No one should get habituated to this type of usage. The author has given very good tips for the usage of the cards and a useful article.

Author: Gypsy24 Jan 2019 Member Level: Gold   Points : 15

A very nice article by Partha about credit cards. As Partha said, making full payment before the due date is very important. Partial payment attracts huge penal interest.

I differ with Partha on one point that 'low credit utilisation ratio improves the credit score'. I think it is the other way round. I think a low credit utilization ratio does not improve the credit score. The credit limit is a factor which reflects one's worth. If one does not utilize credit facility, then how can financial institutions determine one's worth? So, if one does not utilize credit facility, then his credit limit will be static. It will neither decrease nor increase. Here, credit facility need not be just the usage of a credit card, it includes all sorts of EMIs of any kind of loan, such as housing loan, personal loan, vehicle loan, CC limit, OD limit etc.

So, to increase one's credit card limit, one needs to regularly use one's credit card and pay the dues fully before the due date. By using a credit card, I do not mean that one needs to take a loan of any kind. It can be anything which one needs to buy, like a mobile, or household items or clothes or just anything. Then make full payment before the due date. That way one gets an interest free credit of up to 45 days too.

Here I would like to give an example:- suppose I want to buy a TV worth 40,000. I have that 40,000 in my saving account. I can buy it using a debit card, but I will prefer to use my credit card to buy that TV. Why? I have a credit card whose bill is generated on the 15th day of every month. Suppose, I buy a TV worth 40,000 today (24 Jan 2019), then I will have to pay that 40,000 by 06 March 2019 (the pay by date of my credit card). I will deposit a check of 40,000 on 01st March 2019 for the bill generated for my credit card for the month of Jan 2019. That way, that 40,000 will remain parked in my saving account between 24 Jan 2019 and 06 March 2019. So, I will earn an interest of 0.5% (@6% p.a.) on 40,000 (which is 200) for the month of Feb 2019. Every penny saved is a penny earned!

It will give me two benefits
1) I earn RS 200 as interest
2) I utilize my credit card for Rs 40,000, which will help in increasing my credit limit in future, provided I pay my bill fully before the due date.

There are other benefits of having a credit card. Sometimes Banks offer no interest EMIs. So, one can opt for 3-month or 6-month EMIs and save more by earning interest on the amount spent, provided one already has the amount spent parked in a saving account. Secondly, sometimes companies offer cash back on credit cards at the time of festivals to increase their sales. Last Deepawali, companies offered 10% cashback on electronic items. So, buying a TV worth 40,000 on last Deepawali by using a credit card would have given Rs 4,000 as cashback, making that TV Rs 4,000 cheaper.

So, for optimum use of a credit card, one must use one's credit card to the maximum and not sparsely. The bottom line though is one's paying capacity of the credit card bills fully before the due date, otherwise one will fall into the trap, which the banks are waiting for.



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