Outlook Money
Before applying for a new credit card it is essential to understand the implications. Here are six important aspects to consider while making an informed selection and using your credit card successfully.
Credit cards frequently carry high interest rates, which can vary from 24 per cent to 42 per cent per year. Failure to pay off your amount in full each month may result in substantial interest charges. To avoid a debt spiral attempt to pay off your balance on a regular basis.
Maintaining a low Credit Utilization Ratio (CUR) is crucial for a healthy credit score. Ideally, you should use no more than 30% of your total credit limit. For instance, if your credit limit is Rs 10 lakh, keep your spending under Rs 3 lakh.
While using multiple credit cards can help manage your CUR, having too many can be risky. Avoid using one card to pay off another, as this can lead to a debt cycle and negatively affect your credit score.
Credit cards often offer reward points for purchases, which can be redeemed for discounts or other benefits. Check the card’s terms for rewards expiry and redemption options to make the most of these perks.
Some credit cards offer pre-approved jumbo loans with minimal documentation. Although useful in emergencies, these loans come with high interest rates. Use them sparingly and only when absolutely necessary.
Withdrawing cash from your credit card incurs high fees and interest rates, typically ranging from 2-3 per cent of the withdrawn amount plus a fixed fee. It's best to avoid cash withdrawals unless in urgent situations.
Compiled By Manas Malhotra