How to choose and use credit card smartly?
Credit cards are slowly becoming part of our life style, whether its shopping at local supermarket or recharging your mobile using mobile wallet. Let us see how you can choose a right credit card and use it smartly.
1.Get a right credit card
There are variety of cards being offered by credit cards companies with features like cash back on shopping at supermarkets or departmental stores, cash back on fuel purchase, air miles benefit on all transactions and even free movie tickets.
Telemarketing operator may call you and offer mouth-watering deals and benefits with the card. They might even tell you that there are no annual fees or joining fees applicable on the card. Do not get carried away by this carrot dangling, check the credit card company site for actual benefits, conditions and charges before applying.
Choose card depending on your lifestyle. For example if you are a frequent air traveller then go for card with air mile benefit. If you are movie fanatic, then go for card with benefit on movie ticket.
2.Choose right credit limit for your card
Your credit limit is decided based on your annual income. If you are not a frequent credit card user then request your credit card company to provide you with a lower credit limit.
Remember not to max out you credit limit every month as it will affect your credit score. Credit utilization should be limited to 30% of your card limit. For Example, if you choose 100k credit limit then you should try to keep your monthly credit card bill below 30K.
3.Smart way to use credit card.
Use credit card at start of credit cycle to get maximum interest free period. You can time your purchase to get maximum benefit out of your credit card.
Example: Assume that your credit card statement is generated on 4 Nov for transactions between 4 Oct and 3 Nov and your payment due date is 25 Nov. If you make any purchase on 3 Nov then you will have to pay for the transaction on 25 Nov. But if you delay your purchase by one day to 4 Nov, then the transaction will be billed in statement of 4 Dec and you will have to make payment only on 25 Dec .
You can have two or more cards and use them depending on the benefit on the card.
Example: You can use one card which provide cash back on retail purchases for shopping and card with cash back on fuel purchases for filling up your car fuel tank.
4.Payment of credit card bill
Always pay your credit card bill before due date, as late payment will affect your credit score.
If you pay only minimum due amount, then the card company will charge you interest on all transactions from date of transaction. Credit card monthly interest rate can be as high as 3%. If you do not make any further transaction on your credit card and continue to pay only monthly due amount, then it will take approximately 6 ½ years to settle your credit card bill.This is on account of high interest rate being charged by credit companies.
If you cannot pay your credit card bill in full, then better convert high value transactions into EMI. Lower interest rate will be charged on EMI option. Another option can be to avail personal loan to pay off credit card bill.
5.Non use and termination of credit card
Even if you have not used credit card, check your credit card bill if any annual/joining fee has been charged in your bill. If you do not want to use any particular card, then inform your credit card company about the same and take confirmation that no amount is due from your end before cancelling. Do not leave any credit card disputes unresolved, as non-payment of fee or due amount may affect your credit score.