Credit card is a primary source for boosting your credit score, and if you use it wisely, then you can earn rewards as well. Obtaining a credit card is your first financial step, but it can cause long-term damage to your financial health in the form of a wrecked credit score or debt if not used wisely.
Credit card companies will always try to tempt you by offering lucrative reward perks, extended credit limits. Being aware of the risks would help you avoid falling into these temptations.
To know about credit cards, you should first know about how it works?
Apply for Credit card are not as straightforward as it seems, the nuances of things like checking your credit score and understanding your billing cycle will help you to avoid any mistakes that could harm your financial health.
What does a credit card do?
In simple terms, credit cards allow its users to access an agreed upon sum of money between its user and the bank (card issuer). But in case of credit cards, the user will not get any money up front; they will get it as they need it.
Every time that you swipe your credit card, you are borrowing money against your credit limit. Your credit limit is the maximum amount your issuer allows you to charge on a single credit card.
Before you set out and start swiping your credit card, you must familiarize yourself with your billing cycle and payment date.
Also, on your prescribed payment date, you need to make a minimum payment, which would be the lowest amount you can pay to avoid incurring fees such as late fees. The minimum amount consists of both outstanding balance plus interest and is calculated as a percentage.
Things to know and avoid while using a credit card:
Do’s:
• Keep your credit utilization low: Too much usage of your credit card will hurt your credit score. You should try to keep your total balance below 30% of your credit limit, rather than maxing it out.
• Pay off your balance every month: You should pay off your balance in full as it will help you to maintain your credit score and avoid incurring any fees.
• Monitor your monthly statements: Always keep a check on your monthly statements to prevent fraud and also to keep track of your expenses and spending habits.
• Choose a payment date according to your preference: Many of the credit card companies allow you to change your payment date. You can choose a time when your salary is debited in your account or a date when you make payments for other dues. You can also set up an auto-pay to ease the whole process, and it will also help you not to miss a payment date.
• Do not miss any perks offered: Ensure that you don’t miss out on any rewards that are provided to you by your credit card company.
Don’ts:
• Sign up for various credit cards: You can always have more than one credit card, but it is highly advisable to avoid taking an excessive number of credit cards. Even though having too many credit cards is not going to hurt your credit score directly, but it will make it difficult for you to balance payments.
• Take cash advances: The higher than average interest rates and fees associated with cash advances makes it one of the most expensive credit card transactions.
• Skipping payment: Missing a payment can lead to late fees, penalty interest rates, and damage to your credit score. Auto-payments helps in avoiding this.
• Increase your credit limit if you can’t pay it off: You can ask your bank or the credit card issuer to decrease or increase your credit limit at any time. But if you are not careful enough, then increasing your credit limit may lead to more debt. Still, if you want to increase your credit card limit, then make sure that you make all your payments on time.
Just like every other business, credit card companies are also out there to make money. So, do not use your credit card blindly. Research and learn about any additional fees that the credit card companies may charge you with and pay off your debts every month to avoid interest.