Credit cards are very convenient, but a little carelessness can cause huge losses. Knowing these 6 things related to limit, interest and payment is important for your financial health.
Credit Card Usage Guide: The trend of credit cards is increasing rapidly, especially among the youth. From online shopping to emergency funding, credit cards have emerged as a very useful financial tool. But, if it is not used wisely, it can trap you in a trap of debt and interest. In such a situation, it is very important to know these 6 things before taking a credit card:
1. Credit Limit: A fixed spending limit
Every credit card has a maximum spending limit, called credit limit. For example, if your card limit is ₹50 thousand, then you can spend only up to ₹50 thousand from it. Transactions more than this are not possible. However, you can increase the credit limit later.
2. Utilization Ratio: Direct impact on credit score
How much of your total limit you are spending is called the credit utilization ratio. Experts recommend that this ratio should be less than 30%. This means that if your credit limit is ₹50,000, ideally you should not use more than ₹15,000 in one cycle.
3. Timely payment improves credit score
If you pay your card bill on time or before due date every month, your credit score improves. This can lead to cards with higher limits, loans at cheaper interest rates and other financial benefits in the future.
4. Use the interest-free period wisely
Credit cards usually have an interest-free period of 45 to 50 days. If the entire balance is paid during this period, no interest is charged. But if the balance remains after this period, then up to 35–40% annual interest can be charged on it.
5. Paying only the “minimum due” will prove costly
Card companies also mention the minimum payment amount in the bill, which is a small part of the total outstanding amount. But it is not wise to pay only this amount. By doing this, interest continues to be charged on the remaining balance, due to which the debt can increase rapidly.
6. Avoid cash withdrawals
Cash can be withdrawn from a credit card through an ATM, but this attracts immediate and high interest charges. Also, a cash withdrawal fee is charged. Therefore, one should avoid using this option as much as possible.
