Credit card allows users to purchase goods and services, the money for which can be returned afterwards.
While it offers great convenience, cardholders should try to maximize its benefits without hampering the CIBIL.
Acredit card allows users to purchase goods and services, the money for which can be returned afterward. While it offers great convenience, cardholders should try to maximise their benefits without adversely impacting the CIBIL.
Here are some ways to maximize credit card usage:
Pay down principal in interest-free period
According to Anil Pinapala, CEO and Founder, Vivifi, cardholders should pay the credit card bill on time.
“This doesn’t mean minimum payment suggested but paying down the principal that is outstanding due to the various purchases before they start accruing interest,” he explains.
Timely payment of credit card bills indicates good creditworthiness and this may offer the users additional benefits such as a higher credit limit and lower interest rate when they apply for a new credit card or any other loan.
Choose the right rewards
In order to maximise the use of credit cards, one should sign-up for a card with reward points that can fuel other interests, wants or needs in life. Pinapala explains this with an example.
“If user loves traveling they should take a card which rewards with airline miles or hotel points but if a user is someone concerned about the cash they should opt for one with good cashback rewards,” he opines.
Use reward points at the right time
There are various credit cards that offer attractive incentives such as reward or loyalty points. Pranjal Kamra, CEO, Finology advice users to redeem these points to pay the shopping/restaurant bills after a certain threshold.
“The important point to note is that these reward points are valid for a limited period. If users don’t redeem them, the points accrued in the account may expire. So, users should keep a track of the reward points and use them before they expire,” he suggests.
Utilise free credit period
Every credit card has a billing period which is the interval of time from the end of a billing statement date to the next one. This is also known as the free credit period (as the bank does not charge the cardholder any interest during this period). One can time the purchase to maximize the benefit of a credit card. For example, if a user makes any purchase the day after the cycle closes, he/she will get a longer free credit period, as per Kamra.
Be sensitive to how usage may impact the credit score
One should be very careful about running up large balances on a single credit card and be very mindful of utilization percentage, which is the ratio of total credit outstanding to the total credit limit on the card, according to Pinapala.
High utilisation percentage on any single card could be detrimental to one’s credit score. The best option is to have a bouquet of 3-4 credit cards so that users can spread their purchase across multiple cards which will aid in keeping the utilization percentage low.
However, with multiple cards the need to pay all the monthly bills on time becomes even more important as missing any payment due date could hurt the score but paying multiple cards on time can also boost the score rapidly.