7 Golden Rules To Use Your Credit Card Responsibly
How you use your credit card plays a crucial role in determining your credit scores, your ability to avail other loans, and your financial life. The key to successful credit card usage is mindful usage. Find out how to manage your credit cards responsibly.
A credit card is like a magic key – it opens a world of benefits, rewards, and incredible offers. With a credit card, you can make purchases that were previously beyond your means. But, just like any magical tool, it can go wrong – if you don't know how to use it smartly!
When you use credit cards responsibly, it offers enormous benefits. It helps you save money, build your credit scores, improve your credit reports' health, and earn valuable cashback, rewards, loyalty points, and other discounts. On the other hand, irresponsible credit card usage can quickly spiral into a debt trap, damaging your credit scores and even derailing your finances.
Credit cards have earned a bad reputation, of late. However, the truth is that – credit cards are NOT inherently bad. It's all about how you use them. This handy guide shows you how to use your credit card wisely to benefit from all its advantages, without slipping into a debt trap.
Rule No. #1: Pay your Credit Card Bill in Full Every Month
This is the cardinal rule of using credit cards. Irrespective of how much you spend on your card, you need to ensure that you settle the bills in full every month. Don’t fall into the trap of clearing, “just the minimum amount,” as it is a sure-fire way to build credit card debts and pay huge interests on your purchases.
Every time you don't settle your outstanding credit card bill in full, it starts incurring interest on the outstanding amount. Credit cards come with high-interest rates, making it easy to pile up on debt.
Handy Tip: Charge only what you can afford on your credit card. If you cannot afford something out of pocket, then save for it before billing it on your card. You can even settle the outstanding amount a couple of times in a month if you're unable to pay it entirely at the end of the month.
Rule No. #2: Pay your Bill on Time
Besides paying the bill in full, you should also ensure that you settle the bill on time. Most card issuers levy a steep late payment penalty. Also, keep in mind that your payment history plays a crucial role in determining your credit score. A missed or late payment can make your credit score drop by a few points. Subsequent delays bring down your credit score further.
Handy Tip: If you’re forgetful, you can set up a reminder a couple of days before the due date on your mobile phone. Alternatively, you can set up auto-pay on your bank account. This way, your credit card bill is paid automatically on a particular day, every month.
Rule No. #3: Log into your Credit Card Account Weekly to Track your Spends
One of the biggest advantages of using a credit card for your day-to-day expenses is that it's easier to track than cash. You don't have to track each receipt separately. Instead, you can log into your credit card account to see how much money you have spent and how much of the available credit is left. Checking in periodically – at least once a week – ensures that you stay on top of your spending. This way, you don't end up overspending without your knowledge.
Handy Tip: If you see that you have spent way more than you usually spend, make sure to settle the outstanding amount before using the card any further.
Rule No. #4: Stay within your Limits
One of the easiest ways to avoid credit card debts is to avoid overspending. Say, the available credit limit on your card is 50,000, then you should avoid spending more than this limit.
Handy Tip: If you're looking to boost your credit score, it's highly recommended that you don't max out your card's limits. By staying below the limit, you keep your credit utilisation ratio low, which boosts your credit score.
Rule No. #5: Check your Credit Report Periodically and Correct Mistakes, if any
As part of responsible credit card usage, you need to know what's happening in your credit report. Make sure to check your credit report periodically and see if there are any inaccuracies or fraudulent activity. If you notice anything suspicious, report immediately to your credit card company to get it rectified.
Handy Tip: Services like CreditMantri offer customers free credit reports. You can utilise these services to check your credit report online, without impacting your credit scores.
Rule No. #6: Don’t Close Old Credit Cards
Sometimes it may be tempting to close old credit cards and apply for new ones. However, this move can be detrimental to your credit score. The credit history (length of your credit account) is a significant factor in determining your credit score. Having a longer credit history is advantageous for you. So, don’t close old credit cards without weighing all the factors involved.
Handy Tip: Instead of closing old cards, you can apply for an additional card if needed. This way, it lowers your credit utilisation ratio, which boosts your credit scores further.
Rule No. #7: Maximise the Rewards and Perks offered by your Card
Those who gain the maximum advantage from a credit card are those savvy users who know how to maximise the rewards and perks on it. All credit cards come with the option to earn loyalty points, rewards, cashback offers, discounts, frequent flyer miles, etc. Be aware of all the extra benefits offered by your card – and make use of it to maximise your savings.
Handy Tip: While choosing a new credit card, look for cards that offer rewards that matter the most to you. For example, if you're a frequent flyer, then opting for a travel card will help you earn free flight tickets, free lounge access, airline perks, and more. Make sure to compare the different types of reward cards on the market and choose the right one that works for you.
Don’t be Scared of Credit Cards: Learn how to use them to your Advantage.
There is a misconception that credit cards are bad. However, the truth is that credit cards are a valuable financial tool. It can do wonders for your credit history, credit score, and savings when handled correctly. Follow the seven golden rules of credit card usage listed here and make credit cards work to your advantage and not against you.