Using Credit Cards Wisely

Credit cards have moved on to become almost a necessity today. It’s rare to find people having no credit card. In fact most of the people have more than one credit card. However, possessing a credit card is not enough. You also need to understand how to use it properly.

Credit card is simply a loan that you are taking from a bank or a financial institution and you need to pay it back soon. You must understand that if you don’t pay this amount back in time you will have to pay an interest on the amount. This interest is calculated using APR (annual percentage rate) i.e. the interest rate charged on the outstanding balance on your credit card account. This is calculated and applied on a monthly basis. APR is one of the key features one considers when choosing a credit card.

As soon as you receive your credit card, read through all the instructions provided on it. Thing like protection against fraud, reporting loss of credit card, reporting incorrect charges, fees & other charges, contact information, change of address instructions etc are all on there. One must know the various types of fee/charges etc that you can incur. Fee/commission on using some of the features is very. There is hefty charge/fee on cash withdrawals. One should develop good spending habits by refraining from using your credit card all the time. Use cash if you seem to be approaching your credit limit on the card. In fact one should try not to breach 70% mark on the credit limit. This should act as a warning against credit card debt trap.

Here are some tips on what to look for when deciding which credit card issuer to use and using them:

1. Be suspicious of card companies offering low introductory rates. Often times the low rates last only the first three months after which they become higher. The average credit card rate is over 15%.

2. Obtain a card that has no annual fee. Credit card companies are paid a percentage from the vendors every time you buy something. Therefore many credit card issuers waive the annual fee.

3. Avoid credit cards offering high limits (Gold Cards, Platinum Cards). Although ego boosts, cards with high limits create a greater potential to spend.

4. Limit the number of credit card applications you will fill out. Each time you fill out an application you give the credit card issuer the authority to inquire into your credit report. These inquiries, called hits, are recorded. Your credit report contains every institution that ever evaluated your credit history.

5. The best way to use a credit card is to use it only when you can pay off the balance at the end of the month.
Rating keeps developing in the background as you use your credit card. If you don’t pay on time you get negative points for it and if you pay regularly and do not overspend, you get positive points. This rating is developed by various credit bureaus on the basis of information received from credit card companies and is available to all other financial institutions and banks on request. If you have a good rating, the things will go smoothly for you and if you have a bad rating then you might be denied that mortgage that you were eagerly looking forward to. Thus this rating is used to ascertain your credibility and you must try and maintain a good credit rating always. In fact, credit cards are a good way of developing a good credit rating.

A proper understanding of credit cards will thus help you in using them properly and to the best of your interests.

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