Credit Card: Nowadays, the use of credit cards is increasing rapidly, especially among salaried individuals. If you work in a company, you must have received a credit card offer from a bank or a Non-Banking Financial Company (NBFC) at some point. The main attraction of a credit card is that it increases your spending capacity. However, if not used properly, it can also trap you in a debt cycle. Let’s explore how to use a credit card wisely to maintain a good credit score and avoid falling into debt.
The Growing Trend of Credit Cards
In recent years, the use of credit cards has grown, primarily due to attractive offers and discounts provided on e-commerce websites. People are now using credit cards not only for online shopping but also for offline purchases. Additionally, you can now pay your utility bills using a credit card.
There are also several third-party apps through which people transfer money to themselves under the guise of paying house rent, maintenance fees, or education fees. However, this is a misuse of a credit card. Not only does it increase debt, but it also negatively impacts your credit score.
Misuse of Credit Cards and Falling into Debt
Excessive use of credit cards often leads to individuals getting trapped in debt. They use credit cards to buy expensive items and then fail to make timely payments, resulting in a damaged credit score. Sometimes, people even take personal loans to pay off their credit card bills. This kind of behavior damages your credit score.
How to Use Your Credit Card Limit?
A major issue with credit cards is that people spend more than their credit limit. This can harm your financial position and affect your credit score. Ideally, you should spend only 10 to 15 percent of your credit card limit. Spending more than 30 percent of your limit can cause your credit score to stagnate or worsen.
For example, if your credit card limit is ₹1.5 lakh, you should not spend more than ₹45,000 per month. By adhering to this rule, you can use your credit card limit responsibly.
Regularly Check Your Credit Score
Your credit score is a vital part of your financial life. To prevent it from deteriorating, you should regularly check your credit report. If you notice any issues with your credit report, address them as soon as possible.
Avoid Closing Old Credit Cards
If you have an old credit card, avoid closing it. An old credit card helps build your credit history over time, which can positively impact your credit score. Closing an old credit card can affect your credit score.
Responsible Use of Credit Cards
Here are some essential tips for responsibly using a credit card:
- Pay Your Credit Card Bill on Time: Always pay your credit card bill on time to avoid interest charges and prevent negative impacts on your credit score.
- Avoid Borrowing: Only use your credit card when necessary, and minimize borrowing as much as possible.
- Don’t Have Too Many Cards: Having multiple credit cards can increase your spending habit. It’s better to use just one or two credit cards.
- Monitor Your Credit Card Limit: As mentioned earlier, don’t exceed 30 percent of your credit card limit.
A credit card is a useful tool, but if used incorrectly, it can increase debt and damage your credit score. Therefore, use your credit card wisely and within your limit. By doing so, you can secure your financial future and maintain a healthy credit score.
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