A credit card is a plastic card provided by banks and credit card companies. It comes with a predefined credit limit determined based on your income and credit history. It is imperative to assess your needs and repayment affordability and then apply for a credit card that serves your needs.
It is the best way to manage your finances in times of cash crunch. You can purchase goods and services with your credit card and pay the outstanding amount at the end of every month. But, if you miss payments, you will have to incur interest charges and other penalties that can potentially put a burden on your pocket.
Here Are The Top Rules To Follow While Applying For a Credit Card:
Stick to a budget
When you apply for a credit card, you get a credit limit that you can use anytime you want. All you have to do is swipe your credit card and purchase your preferred item. However, you must ensure to never overspend with your credit card. When you overspend, you increase your chance of defaulting to repay the amount on time, and it will hurt your credit score.
Furthermore, using more than 30% of your credit will harm your credit score, as the credit utilization ratio is an integral factor in your credit score calculation. So, you will have to maintain a strict budget and make sure to sign up for instant SMS alerts to keep track of your expenses.
Avoid increasing your credit limit
Your credit card issuer assigns your credit limit based on your repayment capacity. They assess your credit usage, repayment history, and salary increment from time to time and offer to increase your credit limit. But, it would be wise not to increase your limit until you learn to manage your expenses. Keep in mind that if you do not use your credit card wisely, you will land in debt that you will find difficult to recover from. Also, if you increase your credit card limit, it must coincide with your salary increment.
Always make on-time repayments
When you purchase with your credit card, your issuing bank gives you around 30 to 45 days to pay your credit card bill. You can also opt for the minimum balance due payment facility if you do not have enough funds to pay the outstanding amount in full. You can pay the remaining amount due in the next month.
Although you have a flexible repayment period, it is always better to pay your credit card bills on time and in full. You may forget to make repayments, or an emergency may arise due to which you will not be able to pay at all. Missing your payments will negatively affect your credit score, ruining your plan of securing loans in the future. Also, if you do not want to incur interest charges, it is best to make credit card payments on time.
Know the costs involved
Credit card fees, benefits, and interest rates vary across different types of credit cards in India. When you apply for a credit card for the first time, choose a credit card that comes with the lowest annual fee, low interest rates on transactions, and features that cater to your financial needs. Some credit card issuers offer credit cards with no joining or annual fee.
So, while choosing a credit card for yourself, it is better to shop around, research different options, and then finalize the one that best serves your requirements.
Do not opt for cash advances
Your credit card comes with a cash advance facility, which you can use to withdraw cash from ATMs. But, it is not advisable to use your credit card for cash withdrawal, as the interest charges on cash advances start from 30% per annum. The interest rate is charged the moment the cash is withdrawn and continues to compound until you repay the amount.
Instead of your credit card, you could use your debit card to withdraw cash, as you do not have to pay any interest on withdrawing your own money. You can opt for a cash advance when you have to deal with urgency.
Never share your credit card information
Your credit card comes with a PIN and chip technology that protects your transactions. It is a four-digit number that you use to authenticate a purchase transaction. If your credit card PIN or CVV number is compromised, you might lose your money from your card. So, never share your credit card PIN or CVV number with anyone, even he is identifying himself as a representative of your bank.
