Credit cards have become a part of our life. For anything and everything, we end up using credit cards because of the rewards it offers. Credit cards have directly or indirectly increased our spending. We first spend and regret it at the end of the month when we get our bill. The interest expenses on credit cards are no less. Even if one doesn’t want a credit card the banks don’t make it easier for us.

Look at RBI data: As of March 2021, India with a population of 1.3 billion had 62 million cards in force i.e., five cards per 100 persons. This accounts for very low penetration in India making the market fiercely competitive when it comes to new customer acquisition and the choices for a consumer difficult. 

With a fair credit score starting at more than 650 and a regular monthly income, you can conveniently qualify for an all purpose entry level credit card with your preferred bank. Premium features do come with additional costs.

1. Don’t use too many Cards

Using multiple credit cards makes it difficult to track the credit card spending and makes it even more difficult to pay off the dues. One might get tempted to have multiple cards having different credit limits. But with this temptation comes unreasonable spending and high interest expense. It is advised to limit your credit cards usage to 2. Not less and not more.

2. Determine Spend Pattern

Before exploring credit card options for yourself, you must first understand that there is no ‘one size fits all.’ You cannot mimic the spending pattern of your best friend. 

The first step is to analyze your own items of expenditure and to pick a card that is best aligned to your own lifestyle. Go through the following checklist and answer each question to assimilate what and where you intend to use your card.

3. Compromising Card Details

The biggest sin is to reveal your card details to anyone who claims to be a representative of the card company. Banks and credit card companies will never ask for your details. Anybody who does so is a scamster. Also, be careful when handing over your card at a merchant outlet, especially at petrol pumps or makeshift establishments. Your credit card could get skimmed, leading to misuse and losses. Basic precautions can save you millions, literally.

4. Failing to Pay On Time

Credit card companies don’t like customers who miss payments. Do not ignore the reminders they send, telling you when the payment is due. Don’t ignore these. Missing a payment attracts penalty as well as interest on outstanding. What’s more, purchases made in the following month do not get interest-free credit. The biggest loss is a blemished credit history and lower credit score, which adversely impacts your chances of availing any credit facility in the future.

5. Examine Specific Personal Priority

Before taking a final call, however, it is recommended to look at some issuer specific benefits. These could be unique benefits that only a particular issuer offers to its customers. For instance, if you have very frequent rail travel, you may like to consider a card such as the SBI IRCTC Card.

6. Withdrawing Cash

Credit cards allow users to withdraw cash from ATMs— at a very high cost. There is a fixed charge for any cash advance. This can be as high as 2.5% of the amount withdrawn. Withdrawals attract a high interest of 2-4% a month. Unlike purchases at merchant establishments, the interest rate meter on cash withdrawals starts from the day one. During international travel, foreign exchange cash withdrawals could attract an additional transaction fee.

7. Multiple Credit Cards

It is a common perception that credit cards lead to a debt trap. On the contrary you can better manage expenses with multiple credit cards. Let’s discuss how you stand to benefit with two to three cards.

8. Don’t roll over Credit Card Dues

Credit cards issuers allow the user to pay a minimum of 5% so that the late fee won’t be charged. However, the interest is charged on the outstanding amount. It is always advised to not roll over your credit card dues. This is because credit card charges high interest rates (36-48% per annum). Once the interest payment starts it gets difficult to pay off the dues. Pay the credit card dues in full every month within the interest free period.

9. Spending to Earn Rewards

Card companies encourage you to spend more by offering reward points on every expenditure. While it sounds enticing, don’t spend only to earn points. Also, don’t wait too long to accumulate points. The reward points lose value over time like money. If 10,000 points can fetch an item today, two years later the same item may need 13,000 points.

10. Build Good Credit Score with the usage of Credit Cards

One can increase their credit score by using their credit cards. RBI has mandated that all banks have to check the CBIL score of e very loan and credit card application. CBIL is Credit Information Bureau (India) Limited and is the first credit information company is India. Having a high CBIL score means the individual is qualified for good loan deals.

One can use a credit card to increase this core. Pay off your balances on time; keep the oldest credit card accounts as a well maintained credit card account with timely payment of balances is a boon to CBIL score. Keep a track on credit card usage. Use only when it’s necessary as CBIL tracks the credit card utilization ratio. Increase the credit limit on your credit card and spend within the limit and manage the account well. High credit limit will boost the credit score.

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