How to choose and use your credit card wisely

Demonetization was good for some and bad for others. However, it taught us one thing – never trust the hard cash in your hand. With India moving towards digital economy, the importance of plastic money is becoming inevitable. Plastic money is the answer for debt-free, care-free and stress-free way of living. Among all the plastic money, Credit Card’s increasing penetration in our daily life is clearly visible. This demands a wise approach from our end on how to use the Credit Card. Managing your credit card smartly can help you raise your CIBIL score over 750.

Here are some useful tips on how to use your credit card wisely for a Better Credit Score:

1. Choosing the right credit card: The choice of credit card greatly depends on your spending habit. Depending on your spending habit of shopping, flying, and business interactions, you can choose airline, shopping & cashback, and premium cards respectively. Don’t always chose cards solely on their interest rates because there is a possible window of interest rate negotiation with your vendor.

2. Set Credit Limits which are practical: If you feel spending tends to be uncontrollable at times, lowering your credit limit would be the ideal step ahead. A good rule of thumb to decide on a feasible credit limit is by opting for trial and error mechanism for first few months.3. Leverage expense allocation across Multiple credit cards

3. Having multiple credit cards has its own pros and cons: However, a smart buyer would choose multiple cards based on variety of benefits each card offers to create that perfect portfolio. This smartly chosen portfolio of cards helps you spread your expenses, thereby limiting your expenditure per card.

4. Pay your dues in full for better credit score: Credit card users tend to follow the norm of only “paying the minimum amount due” which would lead to a debt trap. This would not only increase your existing debt due to the interest charges on outstanding amount, but also develop a negative impression affecting your credit score.

5. ‘Cash Advance’ should be your last resort: Cash advance facility offered by credit cards normally carry the highest interest rates. Use this feature, where a normal swiping is not possible or go for other formats of credit options for short-term needs.

6. Spend in smaller chunks: Going full swing on your spending spree might lead you inside the vicious interest cycle, wherein the outstanding amount increases continuously with increasing interest on pending amount. The best solution in such a situation would be to leverage your multiple credit cards for spending on various needs in smaller quantities according to the card features.

7. Don’t Miss on any Payment: To maintain a good CIBIL score, set up a direct debit facility so that you don’t miss out on any payments. If your credit card is linked to your bank account, it’s better for you as you then do not have to worry about due dates on your credit card payments each month.

8. Use all your credit cards time and again: Non-usage of a credit card from your multiple card portfolio can lead to banks closing them or even reducing your credit limit. This will negatively impact your credit score. Make sure you pick each credit card for depending on your usage bills.

9. Review your Credit card statements: Credit card statement contains vital information about your transactions done in the billing cycle, the total credit you are eligible for, how much you have already spent, and the status of your reward points. Studying your card statement on regular basis helps you study your card spend and usage behaviour, thereby helping you have a better control over the card.

10. Be cautious about frauds: Before using your credit card for online shopping, make sure the site complies with the relevant laws. Check reviews and brand history before going ahead with online payment. Beware of frauds on other platforms like email and telephone, as well.

11. Study the Reward and Redemption process: Before buying a credit card, make sure you have studied the reward structure that comes along with it. This helps you to better your reward points and redemption process.

12. Stay loyal to your brand: A loyal credit card holder tends to enjoy better benefits offered by credit card vendors. Credit card vendors come up with some attractive reward structures now and again to complement the loyalty of their old customers. Closure of credit card in a short span of time can impact the credit score. If you need to close some of your cards, start with the latest.

Better credit card management is not rocket science, but is more about developing a better financial habit. By doing this, you can be in better control of your credit card and build a great CIBIL Score.

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