Credit cards allow you to make purchases and pay the bills later. Credit cards are easy to use. They also help in building a positive credit history. There are many other interesting aspects that we do not know about Credit cards. Let us understand how to use them fruitfully without incurring extra or heavy costs.
1.Credit cards facilitate the conversion of currency: While shopping overseas online or visiting a foreign country, the bills can be paid in any currency by using Credit cards. Banks or credit card companies charge currency conversion fees for this facility. Sometimes these charges are high or result in missing a payment or carrying forward a balance debt which are to be repaid with fees and interest charges. There could be GST charges or foreign currency mark-up fees too associated with such transactions, so a reasonable use of this facility is advisable. Choose a card that does not charge foreign transaction fees.
2.Watch out for the credit limits: There is a pre-set credit limit spending beyond which you may end up paying an extremely high penalty ranging from Rs.500 to any amount. Once this limit is crossed you may end up in trouble.
3.Mindful use to gain a good credit score: Each person enjoys his/her own credit score. This eventually depends upon how regularly/timely one is in paying off the bills. A good credit score helps you in getting loans as against a debt piling situation where you miss the repayment cycle. Credit score has an influence-good or bad, on the financial obligations in future.
4.Check the interest, fees etc: By use of a credit card, cash withdrawals are possible through an ATM. But this carries a high cash advance fees and not at all advisable. The credit card Cash withdrawals come with a limit and mostly this is 40% of the card limit. The credit limit is different for different cards. Cash-withdrawals made through ATMs by using credit cards carry an interest charge ranging from 3%-5%. Understand how grace periods and interest charges work for using credit.
5.Know how various offers work: Banks and Credit card companies make the use of credit cards lucrative by offering discounts and other bonus points when a customer accepts their offer to use them. There are cash backs on a few transactions. If you spend a certain sum of money during a specific time limit, you are given bonus points to be used later while making purchases etc. But understand that this is like an interdependent payment cycle. You are supposed to spend a minimum amount to get the offers and you fall in the trap of using more money or making unnecessary purchases which otherwise you would not have preferred to. Accept credit card offers only when they fit your spending criteria.
A minimum payment is usually due to pay for a month. Typically, 20 to 30 days are allowed as grace period to pay bills in full during that period. If not paid within that time, interest starts accruing.
Similarly, there are numerous fees which are added to the cost of using them. It is important to know that GST is applicable even in case of credit card fees and charges.
Card’s APRs are also described in the agreement. Select cards without annual fees. Keep a check on available credit that has been used at any point of time known as credit utilization ratio.
Use a credit card mindfully as they can work against you if not utilized properly. Check your credit card statements from time to time to make sure your account activity is being reported correctly in order to avoid fraudulent use of it.
Bhoi Smrutirekha Dharanidhar