1.Protection against fraud
CREDIT CARDS ARE convenient to pay for purchases, but if you aren’t careful, a hacker might steal your card details for fraudulent transactions. To avoid being swindled, opt for two-factor authentication wherein you get an OTP on your mobile phone or email ID to approve any card transaction. Fortunatley, in India, you get SMS alerts every time your card is swiped, so if you notice any unathorised transaction, block your card immediately by either calling the customer care service of the bank or via Net/mobile banking. Next, raise a complaint with the card issuer within 48 hours and report the crime to the national helpline 1930. If the bank is assured that your card was misused by someone else, it will reimburse your money.
2.Set transaction limits
ANOTHER WAY TO avoid your card being misused is by setting limits on your spending amounts. This is especially essential if you have opted for the wi-fi feature available on your card as just a single tap debits money from your account. So, it’s a good idea to set a low limit (about Rs.1,000-2,000) for such tap transactions while higher amounts will require swiping the card and your PIN. It is also important to set limits for online transactions, even though online purchases require an OTP. Be extra careful about international transaction limits. International usage will not require an OTP, which is very risky. So, if you aren’t travelling abroad or making an overseas purchase, deactivate the international use on your card. It can be reactivated whenever required.
3.Use 2-3 cards for longer credit period
EXPERTS SUGGEST THAT you should have 2-3 credit cards, so that you have financial flexibility if there’s any problem with a particular card. This also enables you to split a big expenditure so that you don’t maximise the credit limit on a single card. You can also leverage multiple cards to get a longer interest-free credit period. In the graphic below, you can see that you can use one card to pay for purchases till the 15th of the month, then switch to the second card till the 25th and then move on to the third card. If the bill payments on the cards are due on the 15th, 25th and 30th of the next month, respectively, you will be able to maximise your interestfree period on each card. This will also allow you to juggle your expenses and pay off your bills comfortably rather than be stressed about paying a massive bill at one go.
4.Auto-pay credit card dues in full
ALWAYS PAY YOUR credit card bills in full each month before the due date to avoid late fees as well as being penalised with high interest charges, ranging from 24% – 46% per annum, on the outstanding amount on your card. The best way to ensure you don’t miss a payment is to opt for the autopay facility on your card. You can choose to automatically pay the minimum amount, a set custom amount, or the full payment. Ensure that you pay at least the minimum so that you aren’t slapped with a penalty for non-payment, and your credit score remains intact.
However, don’t fall into the ‘minimum due’ trap or you will accrue high interest on your outstanding amount, which can build to a high debt over time. Raj Khosla, Founder and MD of Mymoneymantra.com says, “If you roll over your credit card bill, the card issuer will charge 2-4% not only on the outstanding amount, but also on new purchases in the following month.” Even if you have selected autopay, you should still review your credit card statement and check that you have the funds needed for the automatic deduction or your bank will charge a return payment fee. Repeatedly defaulting on payments can impact your credit score negatively.
5.Choose a card according to your consumption pattern
CREDIT CARD ISSUERS lure customers by offering a variety of joining benefits and co-branded deals. So, you need to be smart about which ones work best for you as your card usage should be aligned to your spending habit.
Here’s a short quiz to help you figure out which card you should choose.
6.Use all your cards to improve your credit score
AN EASY WAY to improve your credit score is to have a low credit utilisation ratio. In simple terms, it means how much of your available credit you are using. So, if your total credit limit on all your cards is `6 lakh and your outstanding amount is only `60,000, your credit utilisation ratio would be 10%. But if your outstanding amount is `2 lakh, the ratio increases to about 33%, which is high. A healthy ratio is below 30%, while the best is considered to be less than 10%. Says Dinesh Rohira, Founder and CEO of 5nance.com, “Having 2-3 cards helps you get a higher credit limit as well as spread out your purchases, thus helping to have a good credit utilisation ratio. Over the years, this helps you to build your credit history and CIBIL score. This, in turn, allows you to have an even higher credit limit, which can be useful in emergencies.”
7.CASHBACK AND REWARD
points are the big lures banks use to get people to apply for credit cards. These can be beneficial if you know how to use them right. For instance, if you travel frequently, opt for a co-branded card with an airline where your shopping can help you acquire ‘air miles’ that can be redeemed against flight bookings. If you often shop from a particular website, you can choose a co-branded card that offers you cashback, such as the Amazon Pay ICICI credit card that offers you up to 5% cashback on Amazon spends, and this money can be used against future Amazon purchases.
Typically, you can save anywhere between 0.25% to 3.3% on your expenses. However, the catch is that there may be restrictions on how you can use the reward points or cashback. For instance, there could be a minimum or maximum limit of points you can redeem, you may have to pay extra to redeem the reward points, or you may be able to use the cashback only on particular sites. Also keep in mind that reward points sometimes have an expiry date. You can redeem your points for products, discount vouchers, air miles or cash. Says Rohira, “Cash redemption is the best option unless you are going to use a discount voucher for certain, as the voucher may expire before you’re able to use it. Though the conversion rate of redemption points is lower in case of cash compared to vouchers, the former is still more lucrative as you can use the cash to pay your credit card bill.”
8.Check all the benefits and risks
BEFORE APPLYING FOR a card, check out all the benefits you can squeeze out of it. Several premium cards come with an annual fee ranging from Rs.1,000 to Rs.20,000, but they also come with a host of benefits, such as priority check-in and access to airport lounges that have free wi-fi and dining services. For instance, the HDFC Bank Regalia Credit Card comes with 12 complimentary visits to airport lounges per calendar year within India, at both domestic and international terminals (six each), and complimentary Priority Pass membership. Along with this, the card offers you a 24/7 concierge service, akin to having a personal assistant that can help to make your travel experience more convenient, especially if you’re in a country where you’re not familiar with the language.
However, you must read the fine print carefully to avoid being burdened with hidden charges. A free card may have an annual fee or your reward point accumulation may differ according to where you swipe the card. For instance, the SimplyCLICK SBI Credit Card provides you points worth Rs.2.50 on spending Rs.100 on online shopping from its partners, and points worth only Rs.1.50 on a spend of the same amount on other online shopping. In case of offline shopping, your point accumulation drops drastically to only worth 0.25 paisa per Rs.100 spent.
Also, not all benefits are as impressive as they may seem at first glance, such as insurance covers provided by some cards. Rohira says, “Be cognizant of the benefits, but they shouldn’t be the criteria for choosing a card. While air accident covers, baggage loss or emergency hospitalisation can be helpful in emergencies, you can get all these and more at a cheaper rate of just Rs.100-200 under a travel insurance policy. Also, there may be many riders attached to making an insurance claim on these cards.”
9.Be wary of EMI transactions or cash withdrawals
A CREDIT CARD can be used to convert a big-ticket buy into EMI transactions after the purchase, which can be repaid over a flexible duration of 3-36 months. This can be done till your credit card bill’s due date. However, these transactions aren’t free as touted, and even if a handful are, you will need to pay a processing fee, service charge, convenience fee, GST, etc. In most cases, the interest can be quite high and range from 13-24%. Says Khosla, “Credit card loans are some of the most expensive unsecured loans.
If you have a good credit history, you could probably get a cheaper personal loan, consumer finance loan, or even opt for an overdraft facility on your salary or FD.” Also, the entire transacted amount is blocked against your credit limit, and not just the EMI amount. This means that the credit available to you for future use is lower, and this could also affect your credit utilisation ratio. These two reasons are also why you should never use your card to make cash withdrawals unless in case of a dire emergency when you’ve exhausted all other options.