Ever wondered why banks keep pushing users to sign up for credit cards? Does it make you think whether having a credit card really has its advantages? Let’s venture deeper into the blog to understand The Smart Ways of Using Credit Cards.
First let us understand about the term Credit Card and how different it is from a Debit Card.
A Credit Card is a rectangular piece of plastic issued by a bank, that allows users to borrow money and pay for goods and services.
When it comes to a Debit Card, you can only spend that money which is there in your bank account. With a Credit Card, you get access to additional money which is not in your bank account. You can use this additional money to buy goods and services.
Based on past factors, such as your spending history, your CIBIL score, the time you take to pay the borrowed money, your Credit Card limit is decided. The limit tells you how much money is allocated to your Credit Card.
The return window for Credit Cards is usually 45-50 days. For example, if you used your credit card on the 1st of February, you have essentially borrowed money from the bank. In this case, your return date for paying back the money is 17th or 22nd March (depending on whether the return date is 45 days or 50 days). If you return the money within the return window, the borrowed money is paid interest free. The minimum return window for credit cards is 15 days.
Let’s first look at the advantages of using a Credit Card. Imagine you are in a situation where your family member has had a medical emergency. If you don’t have the required funds to admit them in a hospital, your debit card is rendered useless. However a Credit can be useful in this case as you can withdraw an amount which is more than the money in your current account. The assumption is that the credit card limit is enough to cover the medical expenses. For emergency purposes a credit card is very useful. The Second advantage is that you get an interest free loan for a limited window (50 days in most cases). If you pay your Credit Card bills on time, it helps you improve your CIBIL Score. If you have a good CIBIL score, it is easier for you to get bigger loans. Credit cards also have a very nice feature of reward points. Everytime you use your credit card, you get reward points. Once you have accumulated a substantial amount of reward points, you can use it to avail cashback of upto 5%. Isn’t that awesome?
Now lets’s discuss the smart ways of using Credit Cards
Pay attention to your spending
If you do not watch your expenditures, you risk falling into a debt trap. It’s crucial to monitor your credit card spending. Keep a handwritten journal or list of all the expenses you incur when using your card for any transaction. This will aid in reducing the propensity to indulge. Now that you can establish transaction limitations on your Credit Card for particular categories of purchases, staying within your budget has never been simpler.
Choose a suitable Credit limit.
Did you know that you may change the credit limit on your card? Ask your creditor to set a limit that enables you to pay your bills on time before the due date. A Credit limit that is too high could drive you to overspend, while one that is too low might prevent you from making necessary, expensive purchases. Setting the right Credit limit is crucial since not making timely payments on your credit card bills might hurt your Credit score.
Periodically review your Credit Card statements
Monitor your credit card statements carefully. It’s a good practice to compare the statement that was billed to you with the payment receipts you got at the register or point of sale. You may manage and set priorities for your finances using this. Additionally, it will assist in finding and avoiding any charges that may have previously escaped your notice. Occasionally, the merchant name on your credit card statement may seem differently, so it’s important to carefully review each transaction.
Utilize Rewards and Freebies
Credit Card providers may offer bonuses and prizes. This could take the shape of rebates or cost-free gift cards. For the most recent offers, check with your bank. Not many people are aware of many typical credit card features. For instance, the majority of Indian Credit Cards offer free insurance against accidental death or severe disability. Additionally, you can spend your reward points to purchase items you require. Depending on your demands, pick from a variety of credit cards that provide a wide range of services and advantages.
Pay Credit Card bills on time
You must pay your bills on time, every month. Though it seems obvious, many people tend to ignore it. Non-payment of Credit Card bills attracts unwarranted interest rates, finance charges and late fees which can badly upset your budget. If you are not regular in your payments, it could also hamper your Credit score, which could become a problem if you want to apply for a loan later. Also, If you miss out on your payment, you will have an interest of to pay about 2.5% to 3% per month. Banks thus have an incentive to sell you Credit ards.
Utilize quick loans
Did you know that the use of your Credit Card can facilitate a quick loan? Yes, a Credit Card gives you the option to borrow money against your Credit Card limit for an unsecured loan. Your spending habits, transaction patterns, and payment history all play a big role in this facility.
Use Contactless Credit Cards instead
The most efficient method of preventing infection in the current pandemic crisis is to limit interaction. A Contactless Credit card sounds like a godsend at this point. Now you can tap your contactless credit card over the POS (point of sale) gadget to quickly make the purchase rather than swipe your card and enter your PIN. This makes it possible to pay at the cash registers more quickly.
Request a high credit limit.
Each person has a distinct maximum credit limit. Ask for the greatest credit limit possible if you decide to get a new credit card. A high credit limit raises your credit score in addition to giving you a bigger limit for credit transactions. This is due to the fact that sparse use of a credit card with a large spending limit suggests that you are not credit-hungry, which is beneficial for building your credit history.
Spend time understanding rewards.
You receive reward points from Credit Cards for a variety of purchases. Additionally, some premium cards offer privileges and gift cards that are guaranteed, such as free entry to airport lounges. Additionally, some presents could be given as joining benefits or as ongoing benefits. Additionally, you can exchange your acquired points for gifts in cash or in-kind benefits. Utilize your card in a way that maximises the rewards and benefits for which you are qualified.
Never accept the bare minimum
It’s often mistakenly believed that making the minimum payment on your card dues is sufficient. You must make your bill payment on time to avoid penalties. You must, however, pay the amount in full in order to avoid paying high interest rates. Avoid paying attention to the minimum dues and make it a point to pay off the entire sum on your card each month.
Try not to use your Credit Card at an ATM.
You can use Credit Cards to make ATM withdrawals as well. Use this facility sparingly. Although legal, ATM withdrawals are very expensive. That is a price you wouldn’t want to pay, right?
Consider whether you actually need that co-branded card.
Many companies will try to persuade you to join their co-branded card programme. You must consume a lot of that specific brand for any co-branded card to be helpful. Such is their system of compensation. Before applying for such cards, thoroughly review the perks. You should choose a card if it enhances your way of living.
Keep your credit card information safe.
Scammers continue to develop new techniques for cheating Credit Card holders. One needs to educate themselves and be alert to emerging hazards. Keep security information, including your security pin, CVV number, one-time password, and expiration date, private and secure at all times. Always be aware of the location of your card while handing it off. Take care not to swipe your card anywhere other than POS terminals and ATMs. Your card could be copied and used fraudulently if you swipe in an unsafe manner.
Be mindful of the joining and renewal fees.
Joining and renewal fees are frequent on Credit Cards. There are cards, nevertheless, that don’t charge a fee. Consider the charge schedule when selecting a card. The benefits of the card should outweigh the charge, which must be fair. Furthermore, if you spend a particular amount annually on a lot of cards, the cost is usually refunded. To avoid paying the annual fees, keep an eye out for this reversal advantage.
If Credit Cards are not your thing, then you always use FatakPay Credit.
We hope you enjoyed reading the blog!