What are the basic things to know about credit cards?

Credit Card guide for beginners-15 Tips to know before using your 1st Card

Congrats for being in the list of 60 applicants out of 100 who gets approved for the credit card & rest were counting day’s to be eligible to re-apply again. Credit card is not just a convenient way for credit spend but your 1st credit card will also help you in a journey to build excellent credit history & hence your credit scores or it can also trap you in a debt which you struggle to repay for years if it is not managed properly. So, before using your 1st credit card, there are 15 points given below which you should definitely read & follow to achieve excellent credit history & avoid the trap of debt.

Start using your card with small payments - Make a start with small payments which can be easily manageable like recharge, bill payments, subscription charges for streaming services or any other recurring payment because these payments would be easily repayable & there would not be any burden of repayment & with minimum credit spend, you also maintain a good credit utilization ratio which will result in excellent start towards building of credit records which will increase the chances of further credit approval & soon you would also be eligible for limit enhancement if you maintain the same for a year.

Use 50/20/30 Budget Rule- 50/30/20 rule is given by Senator Elizabeth Warren in her book, All Your Worth: The Ultimate Lifetime Money Plan which says, Spend 50% of your after tax income on paying for necessities which includes groceries, health, utility bill etc., 30% or less to discretionary items which includes vacations, gadgets, events & other luxuries & 20% or more to savings & debt payments which includes savings, investments & repayments. This rule will help you to allocate your income in such a way so you can live within your means. Your credit card expenditure would be in line with your income & help you to achieve your financial goals.

Keep your credit utilization ratio low- Credit Utilization Ratio is the ratio between your expenditure & Credit limit. Customer who utilize maximum of credit limit are seen as credit hungry by the bank & their chances of approval would be lower as compared to the one who does not spend as much. Don’t use more than 30% of your credit limit for good credit records, limit enhancement & further approval.

Check your statement & track your purchases- You should know the amount you can afford to pay before making a purchase from credit card is a smart way through which you can avoid debt-trap. Set you own spending limit according to your monthly income & avoid using credit payment once you have reached your affordable limit. This can be done by tracking all your purchases on your mobile app or through net banking & you should also check your monthly statement to get the idea that how much portion of credit you are spending on differentcategory.

Avoid overspending- Overspending is simply spending more money on something than you originally intended. It’s common to be tempted to overspend when you get your 1st credit card but with planned budget you can avoid overspending & resist yourself to fall into debt. Swipe your credit card only when you know that you can afford to pay the amount at the time of purchase.

Never exceed the credit limit- Exceeding your line of credit can hurt you in the form of over limit charges & interest which can burden you in repayment & can have adverse effect on your credit score & on your further credit approval too.

Don’t withdraw cash from your credit card- If you use your credit card for cash advance facility, you will be charges at a higher rate of interest & it attracts interest rates from the 1st day of withdrawal which can result you in higher charges & can hurt your wallet.

Pay total amount due on time- You should always pay the total amount due of your monthly due balance. Lender only requires to pay minimum amount due that is only 5% of the total due which seems to be lower & easier to pay amount then to pay the total due balance but paying only minimum due amount adds interest to your balance each month until you pay the full outstanding amount & in this case when you make the partial payment, you outstanding will be decreased by a nominal amount since portion of you payment will be charged as accrued interest & it also affects your credit score.

Don’t use your card for discretionary expenses- Using credit card in a responsible way can help you in building good credit score. Getting approved for the 1st credit card may tempt you to spend on a product or place which actually you can’t afford if you need to pay then & there from your wallet but you do buy that product or services because you have credit in your wallet in the form of plastic card which can tarp you in a debt in a long run & can affect your credit records too. You should avoid this kind of spending habit & maintain credit utilization ratio & pay-off all your debts on time.

Never miss your due date- If you miss your due date, you may be charged a late payment fee with an interest on the total outstanding amount which remains unpaid over the due date which can hurt your credit score & further approval too. So, never be late on paying your credit dues if you want to build good credit records.

Auto debit- Standing instruction giving to the bank to make thedue payment from your bank account directly to the lender every month on your behalf before the due date is called Auto-debit or Auto-pay. If you give the standing instruction to the bank for your outstanding payment of your credit card, bank will pay the due amount to the lender on your behalf from the balance of your savings account which can help you to avoid late payment. By opting for auto-pay, you transfer your burden of paying dueson time to your bank but make sure that your savings account is maintained with sufficient fund otherwise you may be charged with a fee.

Rewards Point- Lender encourages you to spend more by offering reward points on every spent. Do check how much reward point you get on credit spend & what’s the monetary value of 1 reward points. Don’t wait too long to collect points, the reward point loses its value over the time just like money. If 10,000 points can get you an item today, two years later the same item may need 12,000 points to redeem. So, encash your reward points every year or two. Late payment also may led to forfeit few or all of the reward points you’ve accumulated by spending through your credit card.

Utilize all the perks & privileges provided on your card- Credit card comes with many perks & privileges which might be you’re unaware of such as milestone gifts, lounge access, special dine-in privileges, priority check-in, membership of luxurious property etc. Read the catalogue provided with the credit card to get to know all the benefits & privileges available on your card or you can also give a ring to your customer service so that you get to know & can utilize all the perks available.

Keep track of fees & charges levied- You should definitely check your monthly statement deeply. Go through every transactions & its narration & check whether if any charges or fees levied, if it is, then contact to your lender & ask for the correction if it is charged by mistake. If any charges are levied for the first time due to late in payment or because of your default, you can also ask the bank to waive-off the charges if it is charged for the 1st time, in most cases bank waive-off the charges. So, you can try by requesting to your lender.

Check if there is any spent base reversal for your annual fee- Most of the credit card comes with the annual fee which varies from card to card & many issuer gives spent base reversal for your annual fee that is if you spent the specific amount (set by the lender) from your credit card in a year, then your annual fee would be waived-off & also gift vouchers & perks are given to the user on achieving the milestone.