Thursday, 15 November 2018

Don’t ignore 5 things while using Credit Cards


Credit cards are a blessing in today’s time as they help in managing our finances in a much better way. But one needs to manage this tool carefully in order to prevent sinking into a deb trap. Good credit behaviour and avoiding mistakes is necessary to ensure that the credit card helps us in improving our credit score. A good score goes a long way in establishing our credibility. It makes it easy for us to borrow money in future. Here are 5 things that one must not ignore while using the credit cards.
Don’t carry a balance on the card
The card issuer requires you to pay only minimum monthly balance on the card bill every month. It is usually only 5% of the bill amount. But one should not resort to this practice. The longer you take to clear you dues, the more interest you will have to pay on it. Since the credit card interest rates are very high, carrying a balance will soon put you in a debt trap. The interest amount will keep piling up and soon become more than the actual principal amount. If you simultaneously make new purchases the next month then things will get out of control. Hence one should charge only those expenses to the card that one is able to pay at the end of the month. Do not buy items that you won’t buy normally if you had only cash to spend. It is always better to plan out a budget and stick to it, so that you don’t tend to overspend using your credit card.
Don’t miss your payment
Staying current on your payments is of utmost important if you wish to maintain a good CIBIL score. Payment history accounts for 35% of the credit score. Missing payments not only attracts a late payment fee but is also responsible for a low CIBIL score. The late payment record stays on your report for seven years. If you tend to forget the due dates, then the best way to stay on top of payments is to either use Google Calendar or just use automatic payments. If you are unable to pay the entire balance, it is better to pay at least the minimum due amount, than skipping the payment entirely. If you find yourself in a financial crisis then do not ignore your bills completely. The interest will keep piling up and soon become unmanageable. It is better to talk to the credit card issuer to renegotiate the terms. You may try to negotiate a deal and come out with a payment plan that would allow you to pay your dues.
Don’t over utilize your credit limit
Paying the credit card balances in full each month does not guarantee a good CIBIL score. 30% of the score is also based on the credit utilization factor. It is calculated by dividing the amount of credit utilized with the total available credit limit. One must not exceed 20% to 30% of the limit in order to keep the credit score in good shape. A person who is in a habit of maxing out credit cards every month will have a very high credit utilization ratio.


Don’t close old credit cards
The longer the credit history, the better it is for your score. Old credit cards help in increasing the average age of your accounts and hence help in improving your score. So do not close your old credit card even if you are not using them anymore. The credit limit available on these cards help in improving your credit utilization ratio.
Don’t ignore your credit card statements
One must carefully review the credit card statements every month to check and verify the transactions. Any charges that you do not recognize should be dealt with immediately. A monthly review helps in uncovering identity theft cases. Apart from this, the card holders must also review the credit report regularly to see how their credit card usage behaviour is affecting their credit score.
If you take care of the above 5 things, you will be on the right path to ensure that your credit card usage affects your score positively.

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