Introduction

Credit Cards are everywhere. Some of us love them, while some loathe them. Almost all of our salaried borrowers, who are currently cycling an online personal loan with Loan Singh, possess Credit cards.

Being prompt with Credit Card payments is a different responsibility altogether. Credit Cards are a fantastic financial product that help you move around without carrying hard cash. This aspect is sure to lure new users to apply for a credit card. Although the benefits of a Credit Card outweigh its loopholes, there are certain principles adhering to which you can utilize a credit card to its fullest.

Via the Loan Singh Blog, we get to see some excellent responses to our finance articles. All of our borrowers are salaried. Haphazard usage of your Credit Card can affect your credit score. Being helpful, we thought we could give you some tips on smart Credit Card usage (along-with handling other forms of unsecured credit).

Working of a Credit Card

We cannot discuss Credit Card usage without knowing what a Credit Card actually is. You get to avail a Credit Card only if you are credit-worthy and hold a good repayment history. A Credit Card is a rectangular piece of plastic that identifies your unsecured credit account.

• It contains a magnetic strip on the back
• The front of the card houses an RFID chip along with your name, card number and card validity
• A credit card allows you to spend money taken on credit from the bank or card issuing company
• The purchases you make via a Credit Card are done within a billing cycle, which is usually of 30 days
• A monthly statement details your transactions for the most recent billing cycle
• If you have an outstanding balance, you will have to make a minimum payment towards the balance
• After the 30 days, there is a grace period for payment of the credit amount due. If you pay the credit balance in full, within the due-date, you don’t accrue any interest. But, if you pay less than the entire credit amount, within the due-date, you accrue interest on your average daily balance

Credit Card Charges

There are certain charges you need to know about, before applying for a Credit Card. Though not all, but some of these you ought to know are

• Annual Fee – Some banks or credit card companies may offer you no annual fee or joining fee, for availing a new credit card. But after the first year, usually, an annual fee of a minimum of Rs. 200 or higher could be applicable.
• Late Payment Charge – This is levied when you fail to pay your credit card bill within the due-date. This fee can either be fixed or flexible depending upon the amount and company guidelines.
• Interest Rate – This ranges between 1.99% and 4.00%. Converting this into Annualized Percentage Rate (APR), the total interest works out to 24-48%.
• Charges for Exceeding the Credit limit – It is based on the over spent amount.
• Tax – It is charged at approximately 18%.
• Cash withdrawal charges – Levied when you make use of an ATM operated by your credit card issuing bank for a fixed amount depending upon the amount withdrawn.
• Duplicate statement fee – It is charged by some card companies. Avoid this by checking your credit card statements online.
• Outstation Cheque fee – It is a minimum amount charged for using your credit card outside of the credit card usage area.

Credit Card Usage Tips

Understanding Credit Card charges was the initial part. Smart Credit Card usage is based on a disciplined use of the Credit Card. Here are 6 tips for smart Credit Card usage by Loan Singh

Tip #1 – Spending limit

When you receive your new credit card from a bank, or Credit Card issuing authority, the card comes with a certain credit limit depending on your repayment capability. Over the course of usage, looking at your discipline in prompt bill payment or owing to an increase in your income, banks may tempt you to enhance your credit limit. A higher credit limit will allow you to spend more, but it is important to continue to be disciplined and also avoid debt. It is better if you do not increase the credit limit for at least the first year of credit card usage; so that you get used to the payment schedule. Increase the credit limit only when your income increases.

Tip #2 – Keep an eye on the score

Banks and digital lending platforms access your credit records to assess your creditworthiness. Be smart in using your credit card and prevent drops in your CIBIL score. Be prompt with your bill payments and avoid overspending past the credit limit.

Tip #3 – Statement Repayment

Your credit card bill will mention the amount due during the billing cycle, due-date of bill payment and the minimum amount payable. Stand-out in the sea of Credit Card holders, by ensuring zero outstanding balance. This helps build trust between you and the credit card issuer. Also maximize your interest-free grace period. The concept of minimum balance allows you to pay some of the total amount and continue with the credit card usage. But, it also means an added interest charged on the balance that is due. So, make sure you pay the entire bill amount to avoid bearing the interest charge.

Tip #4 – Less Dependent

Now that you have a new credit card, you might be tempted to get on a shopping spree. Remember that reckless spending could lead to serious damage to your financial planning. Credit card holders end up spending more than they actually can afford simply because of the delayed impact on their bank balance. Make use of a monthly planner, or schedule, to manage your expenses. Keep track of your credit card statements, as well. This will help you to spot any discrepancies on the bill, such as duplication.

Tip #5 – Understand Security

Never disclose your Credit Card PIN number and your CVV (Card Verification Value) number to anyone. That’s a sure way to get your card misused and a cleaned-out credit account. Also, ensure that whenever you shop online, it’s always on a secure website.

Tip #6 – Avail Freebies

Don’t overlook the incentives you receive with the usage of a Credit Card. Free air miles and redeemable points on shopping is great, right?

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