Do’s and Don’ts of using your credit card

Your credit card can be a brilliant tool keeping in mind your personal expenses. If used in a proper manner, your credit card can help you enjoy various benefits. However, your credit card must be used in a limit and over usage of credit cards can cause a lot of problems for you including a dip in your credit score. Hence, if you are planning to purchase a credit card for yourself, there are certain do’s and don’ts you must be aware of.

Do’s

Pay your bills on time: You must ensure that you pay the credit card bill on time. Delaying the payment of your credit card EMI and bill may cause a dip in your credit score. Hence, whenever you use the credit card, make sure you clear the bill on the due date, otherwise the bank will charge a late fee.

Low utilisation rate: Make sure that the utilisation rate of your credit card is not more than 30%. For example, if the limit of your card is Rs.90,000, then you must not spend more than Rs.27,000 on a monthly basis using your credit card. Having a low utilisation ratio will help your credit score to rise and it is always easy paying a lesser amount.

Use only when necessary: Yoh must look to use your credit card when you are booking a flight, hotel room, etc. as booking fight tickets and hotel rooms online through your credit card can help you gain rewards. You can redeem these rewards which can be of huge help to you from a financial point of view. Hence, know when to use your credit card and just don’t use it everywhere.

Avoid cards with annual fees and joining fees: Do not go for credit which have annual and joining fees. They bump up your final bill and you have to pay more than what you have spent. Go for credit cards which do not have any annual fees or joining fees. Pay the bank the amount you have spent.

Negotiate for a lower interest rate with your bank: It is always recommended that you negotiate for a lower interest rate with your bank as there is a possibility that they may charge you lower interest rate on your credit card on the account of you being their customer. If you are a customer of the bank and you ask them to lower the interest rate, the chances are good that the lender may comply.

Don’ts

Use card for everyday purposes: Do not use your credit card for the purchasing of essentials such as groceries, clothes. The chances are that you may end up spending more than required. Avoid using your credit card when purchasing clothes, groceries, etc. and use your debit card or pay via cash instead.

Use credit card when you have cash: If you have cash in hand, then it is better to avoid your credit card. This instils a sense of financial discipline in you and you spend only for the things you will require.

Pay the minimum amount: Do not just pay the minimum amount and forget about it. When you pay the minimum amount, the lender would still levy an interest rate on your existing dues. If you continue to pay only the minimum amount, the existing due would only increase and at one point you will find it difficult to clear the whole amount.

Use your card to pay off loans: Do not use your credit card to pay off your loans. If you notice, then you will find that the rate of interest levied on your personal loan is lesser as compared to the rate of interest levied on your credit card. Hence, if you clear your personal loan using your credit card, then the bank will levy a much higher rate of interest on your credit card as compared to personal loan and you will find it difficult to settle the bill on time.

Keep more than three credit cards: Do not keep more than three credit cards. Having more than three credit cards gives a wrong impression to the lenders regarding your spending habits at the time of availing a loan and hence they may not be willing to offer you one. Apart from that, your credit score may take a dip due to the hard inquiries the banks have to make every time you apply for a credit score. Last but not the least, having multiple credit cards may compel you to spend more. Hence, make sure you do not have more than three credit cards in your name.

Hence, these are some of the do’s and don’ts you must be aware of before applying for a credit card. You must conduct a proper research and look for a credit card which does not charge a higher rate of interest. You must inculcate the financial discipline in you and use your credit card only when necessary. Purchase a credit card only if you can clear the bills on time.