Essential Tips for Using Your Credit Card Wisely

In today's world, having a credit card is almost essential for managing finances. However, before you get one, it’s important to understand some key rules to avoid high costs. Unpaid credit card balances can incur very high interest rates—up to 3-4% per month or 36-48% annually. To maintain a good credit score, try to keep your spending around 30% of your credit limit. Here’s what you need to know about using credit cards effectively:

Credit Limit

Every credit card comes with a set limit, which is the maximum amount you can spend. For example, if your credit limit is Rs. 5 lakh, make sure your outstanding bills stay within this limit to avoid extra charges or penalties.

Credit Card Utilisation Ratio

This ratio measures how much of your credit limit you are using. To keep your credit score healthy, try to use no more than 30% of your credit limit. For instance, if your limit is Rs. 10 lakh, aim to spend less than Rs. 3 lakh on your card.

Credit Score

Your credit score improves when you pay your credit card bills on time. A higher credit score can lead to an increase in your credit limit. For example, if you consistently pay bills on time and your limit is Rs. 5 lakh, you might see it raised to Rs.7.5 lakh.

Interest-Free Period

When you purchase with your credit card, you typically have an interest-free period of up to 45 days. However, after this period ends, interest charges will start to apply. It’s important to pay off your balance before this period expires to avoid interest.

Minimum Due vs. Total Due

When you receive your credit card bill, you can choose to pay either the minimum amount due or the full amount. It’s always better to pay the full amount to avoid accruing interest. Paying only the minimum due means you’ll be charged interest on the remaining balance.

Also read: Understanding the Basics of Investing: Key Principles to Know

Cash Withdrawal

While credit cards allow you to withdraw cash, this should be avoided if possible. The interest rates on cash withdrawals are usually very high, making it an expensive option.

By keeping these points in mind, you can use your credit card more effectively and avoid unnecessary costs.