Having a credit card gives you an array of benefits at your disposal. For instance, you can minimise the amount of cash you need to carry, make payments faster, pay in instalments, gain reward points and reduce the risk of theft. On the other hand, there are some risks that come along with using plastic money too. The temptation to spend impulsively is higher and interest can start becoming expensive if you can’t pay your dues in full and on time. This can snowball, cause you to fall into a debt trap and end up with a low credit score.
To ensure you’re on the right side of the fence, here are 6 smart practices that you should follow. They will help you make the most of your credit card and maintain a healthy credit score too.
Understand your credit report and check for errors
Viewing your credit report and analysing the factors that can lead to an increase or decrease in your credit score will help you understand your score better. There are generally 4 sections in a credit report, namely personal information, record information, creditor information, and credit inquiries. However, many a times, owing to misprints or erroneous entries your score can deteriorate. For instance, a loan amount might have mistakenly been added to your account thereby increasing your credit utilisation ratio and potentially reducing your credit score. So, check for such errors and initiate action to remedy them, if necessary.
Make payments in a timely manner
How you treat payments is the biggest factor affecting your credit report and paying your credit card bill later than its due date is likely to bring down your credit score. Here, bills also include other EMI payments towards a car loan and home loan, or insurance policy. In order to avoid defaulting from affecting your score and increasing costs, set reminders and make payments well before the due date. In fact, it’s best if you’re able to pay the bill on the day you receive it.
Stick to a budget and avoid impulsive spending
Access to instant money is one of the key features of a credit card, but in today’s age of digital discounts you can easily end up spending way too much. One way to avoid inordinate spending is to set a strict budget based on your repayment capabilities. Another is to wait a while before purchasing. Putting off your purchase for even a day or two will help you think more clearly as to whether you really want to shop. Moreover, if you have a high credit limit that acts as temptation, you can always request your issuer to lower your limit and then focus on a low credit utilisation ratio.
Maintain a credit utilisation ratio of 30% and below
Credit utilisation ratio indicates how much of your total credit limit you have spent. This factor is the second most important component of your credit score. Generally, a ratio below 30% is considered as healthy. Going above this can result in your score dropping. One simple method of getting the ratio down is by reducing your card balance.
Don’t just pay the minimum amount due
Paying just the minimum credit card bill amount due means that the remainder attracts interest. If this happens multiple times you will end up paying high interest on an increasingly higher amount. This will put you on the brink of debt over time. Thus, whenever possible, you should strive to make a full payment.
Maintain old cards and apply for new ones sparingly
Keeping old cards active lets you build a lengthy credit history. This can boost your credit score. Applying for new credit card will initiate a hard inquiry that is bound to lead the issuer check your credit report. Too many hard inquiries within a short time frame will see your score taking a hit.
One other practice to avoid is to use your credit card at an ATM to withdraw money to meet a pressing need. This is because this transaction carries a very high-interest rate. However, you do not need to worry about this if you apply for the Bajaj Finserv RBL Bank SuperCard, which comes with affordable fees and charges. This credit card gives you the features of an ATM card, an EMI card, and a loan card all rolled into one neat parcel. Make interest-free withdrawals at ATMs for up to 50 days, get an interest-free loan amount for up to 90 days, and convert purchases to simple EMIs and avail deals and discounts on products ranging from movies and air travel to food and clothing.
Also, you can make credit card payment via several avenues like NEFT/ RTGS or cheque. Best of all, you can choose from 6 different card variants as per your needs. So check your pre-approved SuperCard offer from Bajaj Finserv to access credit right away and build your credit score smartly.
Gaurav khanna is an experienced financial advisor, digital marketer, and writer who is well known for his ability to predict market trends. You can find Gaurav on Linkedin.