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How to get the most out of your credit card

Credit cards have their benefits, but also have downsides. Reckless shopping and careless handling can result in big losses

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Cards have replaced cash in wallets. The reason being that they are easy to carry and offer more protection than debit cards or pre-signed bank cheques. While you use your credit cards to make frequent purchases, are you aware of the do's and don'ts of your cards? If your answer is "NO", it's time for you to brace yourself to some ground realities about credit cards and their use.

What you must do?

Safety is an issue that most people complain about while using credit cards or any other electronic payment method. However, unwarranted hassles can be overcome if you follow certain basic steps. Some of them include:

Track your transactions: Swiping your credit card to make a purchase and then forgetting to keep a track of where you spent your money may invite trouble. You must read and verify the details given on your credit card statement received through email or the transaction alerts on your mobile phone. Navin Chandani, CBO, BankBazaar, says, "Every credit card comes with a credit limit. This is the maximum amount you can spend using the credit card. Each time you use your credit card to make a purchase, your credit limit comes down by the amount you have spent. If you exceed the limit set by your card, you may be penalised by your issuer. If you do not track your transactions, chances are that you will exceed your credit limit."

CAUTIOUS SWIPE

  • Keeping track of transactions also ensures that you can flag any unauthorised transactions that happen in real-time
     
  • Though it is difficult to pinpoint the extent to which one must spend, experts warn credit card holders from exhausting their card limit

Check your credit profile: Your ability to pay off your dues within the stipulated period determines your credit score profile. This is because the credit card companies share the details of their customers concerning payment of dues and the penalties to CIBIL. Maintaining a high CIBIL score is important as it helps seek loans from banks in the future. Raj Khosla, founder and managing director, MyMoneyMantra, says, "Credit cardholders can maintain good CIBIL score by enrolling for standing instruction facility to repay their card dues on time. It is in the best interest of the customers to not max out their credit card limit. Use credit in moderation and hold only two to three credit cards." Explaining the same, Chandani says, "If you consistently exceed or even hit close to your credit limit, it will hurt your credit score. Keeping track of transactions also ensures that you can flag any unauthorised transactions that happen in real-time, reducing the chances of fraud."

Know credit card charges: Different banks charge differently for the credit card advantages that they give to their customers. Rachit Chawla, founder and CEO, Finway, says, "It is extremely important to know the charges before applying for one. Charges such as annual fees, ATM withdrawals, interest charges, late payment charges, and GST can be kept under control only when the payments are done on time. Then some cards do not charge an annual fee; other than this, other charges are similar."

What you must not do?

It's better to be safe than sorry, which means that you must refrain from certain activities that may result in unexpected penalties or losses. Make sure that you

Don't neglect credit card bills: Some people tend to postpone paying the bills on their credit cards. What they fail to realise is that their repayment habits are shared with CIBIL, thus affecting their credit score in the long run. Suresh Sadagopan, founder, Ladder7 Financial Advisories, says, "It is very important to pay the credit card bills at the end of the credit period. Else one will have to bear 2-4% monthly interest when one chooses to pay the minimum due. Any default also affects the credit score & will affect while sourcing future loans."

Also, some people tend to pay just the bare minimum credit card bill amount to avoid being labelled as a defaulter. However, this may affect your financial position adversely as some interest amount is bound to be credited to the account, thus compelling you to make more payments on your card.

Don't exceed your card limit: Impulsive shoppers tend to exhaust their credit card limit while buying. Though it is difficult to pinpoint the extent to which one must spend, experts warn credit card holders from exhausting their card limit. Aditya Kumar, founder & CEO, Qbera.com, says, "Going-in for an increase in one's credit limit is welcome as long as one is judicious in using credit. Banks closely look at a consumer's credit standing and income while evaluating his/her eligibility for an increased credit limit. Increasing your credit limit for unwanted expenses will only attract additional interest, inflicting unnecessary debt problems in the future." Furthering on the same argument, Anuj Kacker, co-founder & COO, MoneyTap, Creditline app, says, "Depending on your usage and repayment history, banks periodically revise the limit of your credit card. If your record has been excellent, the bank may offer you a higher credit limit. However, you must remember that while an increased limit means more spending power, it also means more repayment burden. Failure to repay on time will attract high interests and penalties and might even lead to a debt cycle."

Don't share your card details: Banks constantly warn their customers against sharing their bank details or card details like CVV and PINs to prevent fraud. Ensure that you do not note down your card details in random notebooks or diaries.

Don't pay through treacherous sites: Some sites are created only to cheat potential customers of their hard-earned money. Ensure that you validate the genuineness of the site before paying through your card, lest you fall victim to internet frauds.

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