Finance

4 March 2023

Credit cards are generally more secure and convenient compared to other forms of payment. Utilizing one indeed has more benefits and rewards than a debit card. Nevertheless, credit cards can be tricky if you are not habituated to using them. Many end up in a debt trap. If you want long-term benefits and improve your credit score, learn how to use credit cards responsibly through this article.

The purpose of credit cards

Credit cards – whether they come from HDFC or SBI or anywhere else – are a form of payment that enables users to make cashless transactions until they hit their assigned credit limit. When the card is swiped, banks loan that money to users to make a purchase. Since this is essentially a debt the credit card user incurs whenever they make a payment using their card, they have to pay back the amount according to their issuer bank’s terms. Unlike loans that require fixed monthly payments, credit card users can choose to repay the minimum amount due for a month, a large partial repayment, or even complete repayment on the credit loan.

A grace period usually given by most banks allows you to pay back the total amount without interest if paid within a month. If not paid on time, interest will start to accumulate on the remaining balance amount each month, which will be added to the total amount you have to pay back to the bank. Grace periods are a blessing because you get to utilize a temporary interest-free loan. As long as you pay the entire due on time, interest won’t be levied on your purchases. But before you grab the next HDFC or ICICI credit card, consider these best practices, and even check out an offering we have for you below.

Here are some tips for using your credit card responsibly:

Read the terms of the agreement

After opening a new credit card account, carefully review the customer agreement. Also, read the disclosure mentioned at the opening of your account. Through these terms and conditions, you will know the repayment terms, due dates, interest rates, etc.

Prevent Credit Card Debt

One can prevent debt on credit cards by exercising restraint while using the card. Avoid exhausting your card limit frequently. By doing so, your credit scores won’t be affected as well. Credit scores are affected by the credit utilization ratio. Credit Utilization Ratio indicates how much credit has been used; the lower the ratio, the better your credit score.

Also, don’t just pay the required monthly minimum due; clear your entire balance if possible. The right way to use your credit card is to spend the money and then pay off your balance responsibly. By repaying your entire balance diligently, you can build up your credit score and avoid unnecessary interest.

Pay your dues on time

By paying the bank back on time, your credit history will show your discipline. Since credit scores are determined based on your payment history, dues paid irregularly will affect your credit. Your interest amount for future loans or credit cards might increase as well with a bad credit score. By setting up credit card payment alerts or paying your dues through automatic payments, your credit score is sure to increase.

Try to make total payments

Paying minimum dues avoids penalties in every billing cycle. However, you will still have a large balance left that will keep accruing interest. The additional interest amount makes it difficult to clear your credit card debt. Hence, it would be best to always try to pay your credit card bill in total every month, or atleast make the repayments as high as you can above the minimum due.

Protect your Credit Card

By storing your credit card safely and out of reach of other people, you secure all the essential information needed to use your card. Never share your details regarding your card number, CVV, or OTP codes with anyone.

Always report any lost or stolen card immediately and block the card to prevent unwanted usage. If you are notified of unauthorized purchases, always report them to the bank at the earliest opportunity. By doing so, you won’t be held responsible for paying back the bank for the unauthorized usage of your card.

Monthly Review of the statements

To make the best use of your credit card, you need to be aware of your spending limit, annual percentage rate, interest rate, hidden fees, and more. Your credit card statement will contain all these details. By using your credit card frequently, you also maximize reward points on your card. However, if you have a high interest rate or debt to repay, you should avoid using your credit card frequently until all or majority of the debt is paid off. As a result, it is essential to keep checking your card statements to be aware of such details.

Lastly, monitor your credit score

By monitoring your credit score, you can see what purchasing patterns hurt, maintain or increase your score. It also helps to identify mistakes or fraudulent attempts that could hurt your credit score.

Advantages of using your credit card responsibly

If you responsibly make use of your credit card, you will get benefits – A lot of credit cards offer rewards and provide additional value to your credit. If you’ve taken the proper steps in using your card, you will have an exceptional credit score. A good credit score will give you access to more credit card options. Some cards even have additional perks like cash back, travel, reward points, and more. You should consider the new SalaryCard from EarlySalary, featuring higher spending limits, zero processing fees, and no renewal charges.

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