Credit cards give us financial independence. They allows us to go cashless, help in keeping a record of purchases, consolidate payments and even give reward points for spending. They serve as a great financial tool but only if used wisely. Using a Credit card to make purchases is actually a very expensive proposition. It is analogous to taking loan at a very high rate of interest. If you do not manage your credit card wisely your financial health can go haywire and make your life miserable.

Another important fact that makes it all the more necessary to be careful with the credit card usage is that it is directly related to your credit history. The payment patterns get reported to credit rating agencies and affect the CIBIL score. Your bureau score will be the basis of any loan application approval that you may need in the future.

Knowing how to manage your credit cards will help in avoiding any debt troubles and financial pitfalls in the future.

Timely payments

 Paying your dues on time is the best way to manage your finances well. Late payments will not only attract a late fee and interest charges but also damage your credit rating. You need to have a record of on-time debt payments on the credit report in order to establish a good credit history.

Put all your bills at one place so that you don’t lose them. Keep track of the payment due dates and schedule an online payment well before the due date. You can also automate the payments by setting a Direct Debit to pay your bills each month.

Pay the balance in full

The minimum amount that you need to repay on the credit card each month is a very small percentage of the total balance due. If you just pay this minimum balance it will cost you a lot in the long run. Avoid getting into this trap otherwise you will end up paying a huge amount as interest charges.

A good strategy is to pay off your balances in full each month. If you carry a balance beyond the due date, credit cards companies will charge you interest on the whole balance of the card. Paying in full also ensures that you keep your credit utilization limit low which helps in building a positive credit score.

Keep track of your spending and stick to your budget

 Credit cards offer you an immediate credit for expensive purchases. But don’t get lured by this offer. Remember you will have to pay the money back. So stick to your budget and make only those purchases with the card which you think you can afford to pay back. This is a golden rule of using credit cards. If you fail to follow this rule you may find yourself in a financial mess. You will soon accumulate a huge debt balance which you won’t be able to pay. Remember all missed payments will get recorded in the CIBIL report and affect your credit score badly.

The credit card company may have offered you a very high credit limit, but it is wise to set a practical limit for yourself depending on your capacity to pay the dues back. Keeping the utilization below 30% will help in building a good credit score.

 Check your credit report

Credit card companies send the details pertaining to your account to the credit bureau on a monthly basis. Credit bureau keeps track of your payment patterns and calculates a credit score. This score is used by all potential lenders to evaluate whether you are a responsible borrower.

Hence it is advisable to check your credit report on a regular basis. An analysis of the credit report will help you identify any signs of fraud or identity theft. It will also help to uncover any errors in reporting which might be negatively affecting the credit score. Also it will help you analyses your spending behavior so that you may mend your actions if required.

Avoid a single credit card

If you possess a single credit card which you almost max out every month, consider applying for another card. A high credit utilization ratio on the single card will hurt your credit score. A second card will increase the credit limit you enjoy and reduce the credit utilization ratio (provided you do not increase your spending).

 Credit card is a valuable financial tool. If used responsibly, it will work to your advantage and help in building a healthy credit history. It will set a strong foundation for your future borrowing requirements.

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