Using Credit Cards
Credit cards have moved on to become almost a necessity today.
It's rare to find people having no credit card. In fact most of
the people have more than one credit card. However, possessing a
credit card is not enough. You also need to understand how to
use it properly. Sometimes credit cards can become a pain e.g.
when you get into a debt trap.
The first thing to understand is the fact that credit card is
not free money or a goldmine that you just discovered. It's
simply a loan that you are taking from a bank or a financial
institution and you need to pay it back soon. You must
understand that if you don't pay this amount back in time you
will have to pay an interest on the amount. This interest is
calculated using APR (annual percentage rate) i.e. the interest
rate charged on the outstanding balance on your credit card
account. This is calculated and applied on a monthly basis. APR
is one of the key features one considers when choosing a credit
card.
As soon as you receive your credit card, read through all the
instructions provided on it. Thing like protection against
fraud, reporting loss of credit card, reporting incorrect
charges, fees & other charges, contact information, change of
address instructions etc are all on there. You might like to
keep a note of contact numbers separate from your credit card
especially the one for reporting lost credit card. Do not leave
important things like signing on the back of credit card for
later.
Take note of various types of fee/charges etc that you can
incur. You will find that the fee/commission on using some of
the features is very restrictive e.g. withdrawing cash using
credit cards is a sure no-no unless you are in a very difficult
situation and that is the only option left before you. There is
hefty charge/fee on cash withdrawals. Similarly, transactions in
other currencies end up being a bit expensive too (not too much
though).
Develop good spending habits by refraining from using your
credit card all the time. Use cash if you seem to be approaching
your credit limit on the card. In fact try not to breach 70%
mark on the credit limit. This should act as a warning against
credit card debt trap.
Also, it's imperative that you understand the importance of
credit ratings. This is the rating which keeps developing in the
background as you use your credit card. If you don't pay on time
you get negative points for it and if you pay regularly and do
not overspend, you get positive points. This rating is developed
by various credit bureaus on the basis of information received
from credit card companies and is available to all other
financial institutions and banks on request. So, when you apply
for a mortgage or a car loan or for that matter a new credit
card, the bank/institution gets your credit rating from the
credit bureau as the first thing. If you have a good rating, the
things will go smoothly for you and if you have a bad rating
then you might be denied that mortgage that you were eagerly
looking forward to. Thus this rating is used to ascertain your
credibility and you must try and maintain a good credit rating
always. In fact, credit cards are a good way of developing a
good credit rating.
A proper understanding of credit cards will thus help you in
using them properly and to the best of your interests.