Sloppy usage and erratic repayment behaviour can adversely impact your financial health
Disciplined usage of credit cards and timely repayment of outstanding bills is an effective way to manage finances and at the same time, avail various benefits. On the flip side, sloppy usage and erratic repayment behaviour can adversely impact your financial health.
Here I will explain some crucial financial tips to maximize credit card benefits:
DOs
Build or Improve Credit Score Through Disciplined Usage and Repayment
Credit card transactions are equivalent of taking loans. It is the card issuer who pays on your behalf whenever you make a credit card transaction. You repay the amount later on by the due date as per your card’s billing cycle.
Credit card issuers have to report card transactions to credit bureaus, which are then used for calculating your credit score. Credit cards holders can use their card to build or improve their credit score by repaying outstanding dues on time, containing credit card spends within 30% of total credit limit and avoiding multiple credit card applications within a short span.
Convert Your Unpayable Credit Card Bill into EMIs
Credit card users unable to repay their entire credit card dues within the due date can opt for the EMI conversion. They can either convert their entire outstanding dues or a part of it or eligible big ticket spends into EMIs. The interest rate for EMI conversion facility is significantly lower than the hefty finance charges of around 23 per cent – 49 per cent per annum levied on unpaid credit card dues. The repayment tenure of such EMI conversions, ranging between 3-6 months, further allow card users to repay the unpaid credit card bill in smaller tranches as per their repayment capacity at much lower cost.
Tide Over Urgent Monetary Requirements Through Pre-Approved Loan
This credit facility is extended to select card users on the basis of their spending pattern, card type, credit risk profile and bill repayment history. Being pre-approved in nature, these loans usually do not involve any fresh documentation. This allows loan against credit card to offer one of the quickest disbursals amongst all credit options. Most credit card loans offer near instant disbursal or are disbursed within a few hours of submitting the application.
As far as the loan amount is concerned, credit card loan is usually offered up to a predetermined limit sanctioned by the card issuer. Some credit card issuers also offer the loan over and above the credit limit available on the card, depending on the card holder’s repayment capacity and past repayment behaviour. This enables credit card users to continue using their card, as their credit limits are not impacted by such loans.
DON’Ts
Failure to Plan Spends According to Interest Free Period
Interest free period refers to the duration between the date of making your credit card transaction and the due date of its payment. This period generally ranges between 18 - 55 days. During this period, the credit card transactions do not attract any interest cost in the form of finance charges as long as they are repaid by the due date.
Credit card users must try to plan their credit card spends, especially the big-ticket ones, according to their card’s interest-free period. Those having multiple cards should spread these spends among multiple credit cards in such a way that they are able to avail maximum interest-free period for each of those spends.
Letting Your Reward Points Expire
One of the prime benefits highlighted by credit card issuers while pushing their products is the availability of reward points. Accumulated reward points of credit cards can be redeemed against benefits like conversion into air miles, gift voucher, redemption at select merchant outlets and/or online partners. However, the reward points of most credit cards expire after a period of 2-3 years. Only a few card issuers offer credit cards with no expiry date of their reward points.
Hence, credit card holders should redeem their accumulated reward points before their expiry. Failing to track the validity of the earned reward point and their other associated terms and conditions can result in missing out on the reward point redemption benefits.
The author is Director, Paisabazaar.com
DISCLAIMER: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.