If you are an avid credit card user then you must be aware of its impact on your credit score. The credit bureaus consider your credit card repayments and credit utilization ratio as an important factor while determining your credit score. So it can be rightly said that good credit card habits will have a positive impact on your credit health.
So what are good credit card habits? Well, credit cards are an instrument using which you can build or improve your credit score. But if you use it too aggressively or misuse it then it will reflect unfavourably on your credit score.
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Here are a few tricks which will help you to maintain a healthy credit score:
The credit cardholders can avail credit only up to a certain limit as specified by the bank. This is known as the ‘credit utilization limit’ which refers to the total amount that can be borrowed by the user from the card-issuing bank. While the bank considers you eligible to use the entire limit, you must avoid using it at any cost.
As a responsible credit card user you must restrict yourself and utilise not more than 30% to 40% of your credit limit. Over utilizing your credit limit may negatively impact your credit score. Your credit score is calculated based on your credit utilization ratio and it is one of the key factors considered by the credit bureaus. Your credit score reflects positively if you can maintain your credit utilization within this range.
See Also: Different Types Of Credit Cards
There is no harm in owning more than one credit card considering the rewards and discounts offered by them. However, if you have a low credit score or you have the habit of going overboard with credit cards then it is advisable that you should stop owing multiple credit cards. Let’s analyse why these two categories of users should owe less number of credit cards:
Individuals going overboard with credit cards: owing multiple credit cards means you are going to use a good portion of the credit card limit on each of the cards. It is likely, that you will have a good amount of debt to pay back each month. In the long run, you debt may keep building up in case you fail to pay back the amount each month. This may hurt your credit score badly.
Individual with a low credit score: multiple credit cards mean you have considerable debt at the end of each month. A person with a low credit score means you are not in a good position with your loans and debts. So it is better to maintain distance from your credit cards till your credit score improves to avoid more debt.
See Also: Credit Card Meaning
Payment defaults on your credit cards are not be taken lightly by your lender and the credit bureaus. You may escape once or twice provided you have a valid reason for skipping payments. Otherwise, defaults on credit cards may drastically lead your credit score to drop. You may also have to spend excessive money as your late payment charges and even pay higher interest for not clearing your debt on time.
If you often forget your due dates then you may consider the auto-debit option. Using this, you can conveniently make regular payments to your credit card account. Make sure to schedule the auto-debit according to your credit card billing date.
It is always better to make your credit card payments in full at the end of your billing cycle. This will keep you from paying an extra amount as interest. However, sometimes you may miss out on such payments due to various reasons like personal commitments or family obligations. But if you pay less than the minimum amount then you must take these payments seriously as this negligence is going to cost you your credit health. By paying more than the minimum or the full balance each month, you can reduce the finance charges. You can save money and also improve your credit score if you repay your credit card debts on time.
See Also: The Beginners Guide to Credit Cards
Always remember that credit cards should be used for ‘cash advance’ and not for withdrawing cash. Cash withdrawals on credit cards are very expensive and the interest rate levied on such withdrawals is much higher than that of cash advance. Additionally, the banks and the credit bureaus do not view it positively and thus you may end up hurting your credit score badly.
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