Different credit cards have different benefits and rewards. Compare them thoroughly and monitor your spending and credit utilisation ratio to avoid getting a bad credit score
There are tons of credit cards available in the market, so choosing one can be hard, especially for newbies. If used properly, credit cards can be a valuable tool for obtaining emergency cash as well as building a strong credit history. This credit history will be beneficial to you when you approach a bank for a home loan. Further, you can also get loans against credit cards.
Says Sujai Raina, vice president and head of business development, Visa, India said, “Credit cards can be a very helpful financial management tool; the interest free credit period allows you to manage cashflows, while the reward points that credit cards typically offer and other benefits across travel, hospitality, lifestyle etc. can create significant value for customers.”
“Before planning to take a credit card customers should fully understand the application process, documentation required, fees involved, benefits offered and other terms and conditions. Further, a user should be monitoring his/her spending, credit limit utilisation, payment due dates etc,” he adds.
Choose Your Card Wisely
If you don’t have a good credit score, you may not be eligible for non-secured credit cards but only a card that is secured with a deposit that you have in the bank. Also, the choice of card available to you and the credit limit is linked with size of your income.
You should choose a credit card based on your needs. To ascertain this, you should monitor your spending. If you are a regular traveller, you can choose a credit card that offers travel benefits. Similarly there are shopping credit cards, cashback credit cards, fuel credit cards, etc.
Failure To Re-Pay Creates Interest And Bad Credit Score
If you repay your credit card balance timely, you get interest-free money from bank. But if you carry the balance to the next billing cycle beyond the grace period, you will be charged interest on the balance. Interest usually ranges from 15 per cent to 40 per cent. Further you will be charged on any new purchases you make till you settle all the dues. As per RBI guidelines, credit card issuers can charge late payment fees only after three days of a missed payment. It is essential to compare the grace period and rate of interest of different cards before choosing one.
Keep A Uniform Billing Cycle
If you have more than one credit card, you might miss a credit card payment due date. The billing cycle should be set in such a way that the due date of different cards falls around the same date.
Keep A Check On Credit Utilisation Ratio
You should keep a check on how much you are spending, irrespective of your credit limit. The credit utilisation ratio also affects your overall credit health hence a higher utilization ratio cannot be considered good even if your repayment history is decent. In case if you use more than 30 to 40 per cent of your card availability, your credit score will be lowered.
“Thirty per cent utilization may be viewed as a general thumb rule, though it is also fair to expect that utilization could be higher for specific types of spends e.g. traveling abroad with family or hospitalization expenses,” says Raina.
“While keeping utilization in check is prudent, the credit score itself is dependent on many factors such number of enquiries/applications for new credit, payment history, credit history length and type of credit e.g. home loan, car loan, personal loan or credit card,” he says.
Pay Attention To All Fees Involved
Make sure you check all fees and charges related to the card. These are joining fee, annual fee, finance charges, transfer fee, cash advance charges, foreign transaction fees, over-limit fees and more. Secured credit cards generally have no annual fee. And in many other credit cards, the annual fees are waived off if you spend up to a specified limit.
Compare Bonuses And Rewards
Most credit cards come with welcome bonuses for new customers if they spend till a specified limit. This limit should be ascertained before getting the card. Further credit card companies extend reward points on your expenses that can be redeemed on specific lifestyle products and services. Further, they also provide cashback on expenses. A customer may also get miles, a type of reward points that can be redeemed exclusively for booking flight ticket