IndiaLends Advisory

By IndiaLends Advisory

May 13, 2019

Tips For Using Your Credit Card Responsibly

When used responsibly, a credit card can be very useful. When you repay the credit card bill in a timely and consistent manner, it helps your credit score. Some cards offer attractive reward points that can be used for shopping, airline miles, paying the bills, discounts, freebies, etc. There are some credit cards that offer cash backs, which help in repayment of credit card bill. When you transfer balances from other credit cards, some credit cards offer a 0% interest rate for a specific period of time. On the other hand, if your credit card spending gets out of control, monthly bill and accumulated interest can be a problem.

Here are a few things to remember in order to use your credit card responsibly-

Avoid Impulse Purchases

We can understand that it is very tempting to make purchases through your credit card and then forget about them until your card bill is generated. This may quickly lead you on the path of being maxed out. A credit card should be used wisely and responsibly for activities like-

⇒ Managing cash flow

⇒ Purchasing things that you need but do not have money at the time

⇒ Utility purchases made for reward points

Related Article: Types Of Credit Cards

If you are unable to pay off your credit card bill in full by the payment due date, think twice before making those purchases through your card. When you swipe your credit card, you should think, if you need to make the purchase right away or you can wait until you get the money for the same or make the repayment in full.

Pay Off The Full Amount Every Month

Make sure that you make the full payment for your card before the due date. It helps you avoid a high rate of interest and keeps your credit score in good shape. You should plan your credit card spending and don’t fall for the temptation to spend more than what you can repay for that particular month. Once you do this, you will enjoy the benefits and offers of a credit card without having to pay the late payment fee or high rate of interest.

Differentiate Between Need And Want

The usage of a card is critical for your financial life; hence it should be used carefully. Reckless purchasing, one that doesn’t have a serious value or purpose, can push you towards unnecessary bad debt. A card should generally be used in responsible situations like you have a bill coming up and the due date is before your salary day or to regulate your cash flow. Consider credit card as a loan to yourself, and then repay the amount as soon as possible to reduce or avoid interest charges.

Related Article: Which is the Best Credit Card for You?

Skipping Payment Isn’t Smart

You should pay your card bill every month. There might be times when you will not be able to pay off the whole balance, but make sure to pay as much as possible. Missing a payment means you will be charged a late fee along with a high interest on the remaining balance. It also impacts your credit score in a negative manner.

Make Credit Card Help You In Your Budget

When you can use your card responsibly and repay the due amount in full every month before the due date, you can use it as a helping hand in your budget. Spending through card helps you keep a track of your monthly expenditure. You can figure out where you are spending high and whether it needs to be brought down. In order to make sure that the credit card spending doesn’t go out of the hand, you should never charge your credit card more than what you have in your bank account.

Rewards and Benefits

If you use your credit card to make all your purchases, you should use a credit card that offers rewards. There are varieties of reward credit cards. You can choose as per your spending and need. You can earn airline miles, shopping points at retail outlets, fuel reward points, freebies, discounts at restaurants and hotels, etc. Some credit cards offer cash backs that can be used to pay off a certain part of the card bill itself.

Related Article: Why is Credit Utilization Ratio Important?

Credit Limit – Do not use more than 30%

One of the ways to keep a good credit score is to keep the credit utilization ratio under 30%. The credit utilization ratio is the percentage of the total credit limit available. Irrespective of the number of credit cards you have, the combined utilization ratio should not exceed 30% in order to maintain a healthy credit score. The lower is the credit utilization ratio; the higher is the credit score.

Previous Article: What is a Line of Credit and How to Get It

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