A lot of people avoid using or even having a credit card to stay away from the risk of over-spending. While credit cards do offer instant credit access, they may result in a big debt trap for careless spenders. Here are some tips on extracting credit card benefits to the full.
Choose your credit card according to your spending habits – Most credit cards focus on specific transactions by offering higher reward points, cash-backs, and discounts. Hence, analyze your spending pattern to choose a card that yields maximum benefits on your card transactions. For example, if you are a frequent flyer, then consider a credit card that offers free air miles, free lounge access and hotel vouchers on your card spends. Similarly, use fuel cards for fuel transactions if you spend a sizeable sum on commuting through your vehicle.
Use credit card for daily spends – The reward points, discounts and cash backs offered by credit cards help reduce your cost of purchases or services. Regular usage of credit cards will also help in building or improving credit history. However, make sure to always pay your credit card bills in full by the due dates as failure to do so would incur high-interest costs, usually ranging from 18 to 48% p.a., and simultaneously reduce your credit score. Convert your big-ticket purchases into EMIs if you find it difficult to repay your outstanding bill in full by the due date. EMI conversions are available at attractive interest rates and their tenure usually range between 3-24 months.
Opt for multiple credit cards – Having multiple credit cards come with several benefits. First, as credit cards generally cap the number of reward points that can be credited during a particular billing cycle, multiple credit cards will allow you to earn benefits even after crossing the reward point upper cap of your primary card. Second, multiple credit cards will also allow you to maximize your card benefits by distributing your spends across various cards on the basis of their reward points, cash-backs, discounts and other benefits. Third, multiple credit cards will also increase your total credit limit, which in turn will reduce your credit utilization ratio and thereby improve your credit score.
Redeem your rewards points before their expiry-The reward points offered by most credit cards do not last forever; they expire after a pre-stated period. Hence, always keep track of your reward points and make sure you redeem them before they expire.
Plan your card spends according to the interest-free credit period- The period between the date of a credit card transaction and the due date of its payment is known as interest-free credit period. This period can range anywhere from 20 to 52 days. Credit card transactions do not attract interest cost during this period as long as they are repaid by the due date. In other words, your card issuer finances your spends for free during such period. Hence, plan your card spends, especially big-ticket ones, in such a way that you avail maximum interest-free period on them.
Increase your credit limit- Lenders usually prefer to lend to borrowers with credit utilization ratio of less than 30-40%. This ratio denotes the proportion of your total credit limit used by you. Credit bureaus may reduce your credit score on breaching the 30-40% limit regularly. If you are breaching this level frequently, request your card issuer to increase your credit limit. An enhanced credit limit will also come handy to deal with financial exigencies.