Build and improve credit score through disciplined card usage and EMI conversion
Credit cards are one of the most preferred payment methods among consumers. Still, at the same time, they can present financial challenges when not used responsibly or in a disciplined manner.
Following these do's and don'ts can help card users to make the most of their credit cards and avoid falling into a debt trap -
Build and improve credit score through disciplined card usage
Credit card transactions are equivalent to taking a loan, given that the card issuer pays on your behalf and you repay the amount later on as per your card's billing cycle. Credit card transactions are reported to credit bureaus for computing credit score as it is a loan. This makes it imperative for credit card users to repay dues on time. Disciplined repayment behaviour can gradually help build high credit scores.
Opt for EMI conversion
Credit card users may face difficulty paying off their dues on time, especially in case of big-ticket purchases or piled up credit card debt. Converting dues into EMIs can help ease the burden of lump-sum repayment. Interest rates for converting purchases into EMIs are generally significantly lower than the hefty finance charges. These charges, usually around 23-49 per cent a year, are levied if one fails to pay dues on time.
With EMI tenures ranging between 3 and 60 months, choose a period you would be comfortable to repay as per your expected cash flows.
Tide over urgent monetary requirements through pre-approved loans
Credit card users with consistent and disciplined repayment behaviour may consider opting for a pre-approved loan available on their credit card. These loans usually do not involve any documentation since they are pre-approved. They have one of the quickest disbursals amongst other credit options.
As far as the loan amount is concerned, credit card loans are usually offered up to a predetermined limit sanctioned by the card issuer. Some credit card issuers also offer the loan over and above the credit limit available on the card, depending on the user's repayment capacity and past repayment behaviour. This enables users to continue their usual credit card spending. Their credit limit remains intact and does not get blocked.
Underestimate the interest-free period
Interest-free period refers to the duration between the date of making your credit card transaction and the due date of its payment. This can generally range anywhere between 18 and 55 days. During this period, credit card transactions do not attract interest cost or finance charges as long as the dues are repaid within the due date.
It is prudent to plan your credit card spending, especially the big-ticket ones, according to the card's interest-free period. Those with multiple cards should spread these spends among various credit cards to avail maximum interest-free period for each of those spends.
Let your reward points expire
One of the prime benefits highlighted by credit card issuers while pushing their products is the availability of reward points. Card users can redeem their reward points in many ways, like converting it into air miles, gift vouchers, or even redemption at select merchant outlets and/or online partners.
Keep in mind that most credit cards' reward points tend to have predetermined expiry of 2-3 years. This makes it crucial to redeem them before they expire to avoid missing out on the redemption benefits.
The author is Director at Paisabazaar.com.