Some of us might have mastered credit card usage as the cards have been in existence for more than two decades. But every month there are lakhs of people who become eligible to avail a credit card thus become first time users of the plastic cards. As knowing is different from implementing or using the card, there is always something new to learn about the credit cards especially for first-time users.
Some things may sound basic, yet they are the most critical aspects of credit card one cannot afford to ignore. Listed below are a few such basic but important tips that could help first-time credit card users to manage their card without falling into any trouble.
- It’s boring, but worth reading: You might already know what we are talking about. Yes, the terms and conditions that come along with your credit card. Well, the terms and conditions document might look lame and is annoying to read with that ant head-sized font. But we insist you go through at least a few important terms in the document. You can access an e-version of the document by searching the title of the document on Google.
- A few important terms you must know are the interest rate on your card, annual fee, renewal fee, cash withdrawal fee, late payment fee, bill generation date, due date, reward points program and others.
- Limit your spending: A card with a higher credit limit doesn’t mean you spend all of it every month. Make sure to spend only the amount you can afford to pay back before the next due date. Spending above your payback capacity would certainly land you in trouble.
- Further, the credit utilization ratio, which is the ratio between the total outstanding on the card and the total credit limit, must be 30% to maintain a good credit history thereby a good credit score. That means, if you have a credit card with a total credit limit of Rs.1 lakh, your monthly usage should not be more than Rs.30,000.
- Don’t make expensive choices: Certain facilities offered on a credit card, cash advance or cash withdrawal, for instance, are a little expensive than they look. Though the cash withdrawal feature on a credit card looks tempting, you must know all the fees and charges involved before availing the facility. Cash advances are not only charged with a transaction fee on every withdrawal but also attract interest from the date of withdrawal until the amount is paid back in full, making them expensive.
- Know the bill date and due date: If your credit card issuer promotes a credit card with the 50-day interest-free period line, never go by it when clearing your dues. The interest-free period varies from one transaction to others, hence always check your welcome letter or monthly credit card e-statement or net banking account to know your exact bill date and due date. While bill date is the date on which your credit card bill gets generated every month, the due date is the date by which you need to make the payment.
- Never share your card details: Any bank or financial institution that issues credit cards never asks the customer for card related details such as card number, expiry date, CVV and PIN altogether. A card number, in most cases, might suffice to get the information related to the account. Hence, never fall prey for any mobile calls, SMS requests, e-mail messages that pose like the banker and ask for such details.
- All the above-mentioned details are confidential hence should not be shared even with the bank. Opting for two-step authentication will make your credit card transactions even more secure as it sends a one time password (OTP) to the registered mobile number every time the card is used to conduct a transaction. The OTP should be entered to process the transaction thus prevents misuse of card in case it’s lost or stolen.
- Convert your due into EMIs: If the outstanding on your credit card is not too high, you can split and pay the same provided your banks allows it at a lesser interest rate and processing fee. EMI on balance is one of the common features offered by most of the banks to allow credit cardholders to clear their dues in easy monthly installments. Check with your bank about the processing fee, interest rate and other charges involved in the EMI facility before opting for the same.
- Clear the high-interest debt first: If you have debt on multiple cards, target the one that has the highest interest rate. Clear that one at the earliest possible by paying more than the minimum amount due and by making multiple payments a month. Keep the lower interest rate cards towards the end irrespective of the amount of outstanding due on the card.
With the increasing number of credit card scams and frauds, it is important to stay cautious while using the credit card at various venues. Especially online transactions are more susceptible to fraud compared to transactions done at the point of sale (POS) terminals. Therefore, using credit cards on authoritative and secure websites is critical for the safety and security of the card.