Having a credit card is more of a responsibility than you might realise. You have to be responsible enough to swipe card only to the extent you can afford and pay back the amount you’ve used. With 32 million cards active credit cards as on July 2017, it’s true that we indians are loving using credit cards. While earlier it used to be a privilege to hold a credit card, now it has become more of a necessity. The reasons could be- it is more secure and easy to carry than currency notes. They are a saviour in times of mismatch of cashflows with their ‘buy now, pay later’ feature. And of course, the exclusive offers and reward points which save you money are the driving factors for Indian consumers applying for credit cards.
All this sounds fantastic but do you know how to use your card responsibly and become a smart spender ? Here are the 10 smart ways to use your credit card :
1. Read and understand the Most Important Terms & Conditions(MITC) carefully
As the name indicates, The Most Important Terms and Conditions are standard set of conditions, which should be highlighted to the prospective customers at all the stages i.e. during marketing, at the time of application, at the acceptance stage (welcome kit) and in important subsequent communications. Following are the contents of an MITC document which should be referred to by every credit card holder. Click here to view SBI MITC document
(a) Fees and Charges
i) Joining fees for primary card holder and for add-on card holder
ii) Annual membership fees for primary and add-on card holder
iii) Cash advance fee
iv) Service charges levied for certain transactions
v) Interest free (grace) period – illustrated with examples
vi) Finance charges for both revolving credit and cash advances
vii) Overdue interest charges – to be given on monthly & annualised basis
viii) Charges in case of default
(b) Drawal limits
i) Credit limit
ii) Available credit limit
iii) Cash withdrawal limit
i) Billing statements—periodicity and mode of sending
ii) Minimum amount payable
iii) Method of payment
iv) Billing disputes resolution
v) Contact particulars of 24 hour call centers of card issuer
vi) Grievances redressal escalation—contact particulars of officers to be contacted
vii) Complete postal address of card issuing bank
viii) Toll free number for customer care services
(d)Default and circumstances
i) Procedure including notice period for reporting a card holder as defaulter
ii) Procedure for withdrawal of default report and the period within which would be withdrawn after settlement of dues
iii) Recovery procedure in case of default
iv) Recovery of dues in case of death/ permanent incapacitance of cardholder
v) Available insurance cover for card holder and date of activation of policy
(e) Termination / revocation of card membership
i) Procedure for surrender of card by card holder – due notice
(f)Loss/theft/misuse of card
i) Procedure to be followed in case of loss/ theft/ misuse of card-mode of intimation to card issuer
ii) Liability of card holder in case of (i) above
i) Type of information relating to card holder to be disclosed with and without approval of card holder
2. Seek higher credit limit
Credit limit or spending limit is set differently for every card holder. If you are applying for a new credit card, try and get the highest credit limit available. Apart from giving you a higher spending limit, it improves your credit score as well. Credit utilisation shows how much credit you’re using. Credit utilisation rate is calculated by dividing your total credit card balances by your total credit limits on all cards.For example, if you’re having a ₹25,000 balance on your credit card and have ₹100,000 as credit limit, your credit utilisation rate is 25%.
For many credit scoring models, credit utilisation rate accounts for roughly 30% of your score. Due to this, make sure your credit utilisation rate is at a respectable level which will help keep your credit score healthy.
3. Understand your reward points
Every credit card gives your reward points on usage. Some cards give you bonus rewards on specific kinds of spending. You may also get guaranteed gift vouchers, travel vouchers and benefits, such as free access to airport lounges on some high-end credit cards. Some rewards are given as joining perks, others as per type of usage or on achieving spending milestones. These collected reward points can be redeemed for gifts online or can even be used for paying off the annual fees. Now-a-days you can even use these reward pints to make online payments. Reward points on some cards even to do not ever expire. Use your credit card in such a way that it helps you get the maximum reward points and benefits you are eligible for.
4. Timely pay your credit card bills
Save the due date of your credit cards bill payment. Credit cards carry a very high interest rate on roll over balances. So if you do not pay your credit card bill on the due date, you would have to pay high interest, usually upto 3.5% per month(42% per annum). Moreover, the delay in payment of credit card bills carries an adverse effect on your credit score. To keep your credit score healthy and enjoy interest free credit, pay your credit card bills on or before the due date.
5. Don’t settle for Minimum Amount Due(MAD)
Paying the minimum amount due every month would result in the repayment stretching over the years with consequent interest payment on your outstanding balance. You can only skip the late payment charges applicable if minimum amount due is not paid by the due date.To avoid heavy interest charge, you must pay the due amount in full on or before the due date. Don’t pay a heed to the minimum due, and always ensure paying your full bill amount every month.
6. Avoid cash withdrawal from ATM
You can withdraw cash from ATMs using your credit card. You would have to pay a transaction fee which can be 2-3% of the withdrawn amount. All cash withdrawals also carry a finance charge equal to charges on revolving credit from the date of withdrawal until the date of full payment. You do not get interest free period for ATM withdrawals.
7. Co-branded card. Do you really need it?
A co-branded credit card has sponsorship of two parties. Usually one party is a retailer — such as a departmental store,airline,travel-portals etc. and the other party is a bank or card network such as Visa, MasterCard, or American Express. Co-branded credit cards, give you merchandise discounts or rewards points when you buy from the sponsoring merchant, but you can also use the cards any other retailer. At times you get tempted to sign up for these co-branded card. A co-branded card can be a utility, only if your consumption of that particular brand is very high. You should analyse your spending pattern for the brand with which the bank has associated for such a card and only apply if your lifestyle matches with the brand. Else, it would just be an addition to your cards stack.
Also Read: 5 Tips to Prevent Credit Card Fraud
8. Maintain secrecy of your credit card details
Credit card frauds are on rise. Phishing, Skimming, cloning are some of the ways you fall into the trap of scammers. As a thumb rule, always keep credit card details such as security pin, CVV number, OTP, and expiry date private and secure. Try to get a EMV chip based card in place of a magnetic strip based card.
9. Be wary of the joining and renewal fees
Credit cards often carry joining and renewal fees. However, there are cards which do not charge any joining fee. You should look for the annual fee applicable from second year onwards. The fee if applicable should outweigh the card’s benefits. For example, if your card issuer charges a joining fee of ₹499 but gives you a gift card worth ₹500, it neutralises the joining fee. Moreover, many cards allow spend based reversal of annual membership fee. Use this reversal benefit to skip your annual fees.
10. Avail EMI on credit card
If you make a bigger purchase and doubt making the full payment of bill on the due date, get it converted into EMIs instantly. It would cost you much cheaper than revolving the credit by paying minimum amount due. This is called Flexi-pay facility by SBI Cards, pay-in-parts privilege by The American Express Cards and similarly other banks have also got this facility.
Credit cards are becoming a necessity these days. No one wants to take the risk of carrying cash and with the focus of govt of India on less-cash economy, incentives in the form of cash-backs are also being awarded. Credit cards have an edge over debit cards because of the reward points and spend-now pay-later feature. Read and understand your card’s fee structure, interest rates, penalties, and reward programme mentioned in the MITC document.