When you have just entered the professional world you have to deal very carefully when it comes to credit. Remember credit card is a financial instrument and not an avenue to avail endless credit. If managed properly it can work wonders to build your credit score. But it can also damage your creditworthiness when used recklessly.
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Remember the following points when you get your first credit card:
It is quite obvious that your credit utilization limit on your credit card will be low if your income is less. In such a situation it is difficult for people to limit their expenses or resist overspending. Ideally, you should not exceed or utilize more than 30% of your credit limit. People often end up hurting their credit score when they utilize their credit limit beyond the 30-40% mark.
People who use their credit cards too aggressively should take credit card payments more seriously. It shows that you are too much dependent on credit. Staying within the credit limit is not enough. Try to make small expenses using your credit card and repay your dues before the due date. You can also consider using your credit card only in emergencies if your income is low. Good credit card habits will help you to keep debts at bay and improve your credit score.
See Also: Different Types Of Credit Cards
If you are a credit card user you will know how credit cards work. The due date is important as it shows up on your statement every month. Credit card users must pay their dues by this date.
Don’t spend more than you can afford to pay. This is where a lot of people get into trouble with credit cards. You have the option to pay the minimum amount on your due date but once you fall into the trap of paying less than you owe, you debts will quickly accumulate and lead you to a debt trap. To make sure you pay the full statement balance you must exercise financial discipline.
Wondering how you should pay your bills to avoid finance charges and maximise your credit score? Well, you can opt to auto-debit your savings account. Or you can set a reminder and not miss your payment dates.
Impulsive buying is a popular habit among young professionals. However, if your income is low then you must not indulge yourself in such practices. This is because the burden of paying back the amount you owe may not go well for you.
Financial experts warn credit card users and urge them to be conscious of their spending habits. It is all the more important for young professionals and people with low salaries to understand that this shopping spree may end up leaving a huge debt on you.
If you find yourself splurging hastily on your credit card then sooner or later you will end up in a debt. In such cases, you need to open your mind and rethink about your finances.
Rewards points are an attractive way to earn back some of the money spent on your credit card. Various credit card companies give cash backs, reward points and discounts that make it a feasible option to earn while you shop. However, this should not be the main reason to own a credit card. If you are thinking that you will earn a lot by spending recklessly on your credit card then you are mistaken. This strategy works for credit cards with a higher limit. But if you have low income your credit limit will be lower and hence you must use your credit card carefully. Let’s say your credit card gives you 5% cashback points. So if you spend Rs. 10,000 you get a cashback of Rs. 500 which is almost insignificant. On top of it, there will be terms on using these points and you can redeem them only at select outlets.
Therefore, it is unwise if you use your credit card only to get points.
See Also: The Beginners Guide to Credit Cards
One of the most fundamental things about using a credit card is the finance charges you have to bear. Basic credit card with lower limit has a higher interest rate than gold or platinum credit cards. Make sure to understand and evaluate the interest rate before you purchase a credit card.
Instead of accepting any interest rate, you must explore other options and consider the annual fee along with interest rate before purchasing the credit card. It is wise to keep your purse tightened when you don’t have a large paycheck.
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