Using a credit card is the best way to manage your finances when you hit a rough patch financially. It can cover the cost of expenses such as house rent, groceries, etc. It has proven to be the best financial tool available, provided you use it judiciously. Before you apply for a credit card, it is imperative to know what a credit card is and the crucial rules of using a credit card.
What is a Credit card?
A credit card is a plastic card issued by your bank. It allows you to borrow funds from a pre-approved credit limit to pay for your purchases of goods and services. Your issuing bank decides your credit limit based on your income, credit score, etc. A higher credit score can always get you a higher credit limit.
When you swipe your credit card, the funds get deducted from your credit card rather than your bank account. It comes with several features, such as reward programs, discounts, surcharge waivers, joining fee waivers, etc.
Top rules of using a credit card
Although credit cards are a great way to reach financial safety in times of crisis, if you do not use them wisely, you will have immense grief in the future. Here are the top rules to follow while using your credit card.
- Avoid signing up for multiple credit cards
If you already have a credit card, or if you have maintained a healthy credit score by making on-time credit card repayments, you will receive pre-approved credit card offers from different banks in your mailbox. But, that does not mean that you should sign up for every offer that you receive.
If you want to apply for a credit card even though you already have one, make sure that you choose based on APR%, annual fees, 0% introductory interest periods, late payment fees, credit limit, etc.
- Keep your outstanding balance as low as you can
When you apply for a credit card, your credit card issuer gives you a few days of interest-free grace for using your credit card to make purchases. If you pay off your outstanding balance within the interest-free grace period, you will not have to pay interest charges. Keep in mind that it happens if you pay off your outstanding balance. If you miss your payments, high-interest charges will start racking up.
- Avoid growing the habit of making the minimum payment
Although it sounds fascinating to make your minimum credit card payment to avoid interest charges, but, what you do not realize is that if you make a habit of making the minimum payment every time you have to pay an outstanding balance payment, your APR percentage will significantly increase. So, while planning your credit card repayment schedule, it is essential to properly calculate the charges that follow when you continue making minimum payments.
- Do not miss your payment deadline
Another cardinal rule of using your credit card is to pay your balance on time, every time. If you miss your payment by a couple of days, it will not be a big deal, but if you miss your payments more than once, your issuing bank will levy late payment fees and even increase your APR%. So, make sure to set a monthly alarm on your phone to remind you of the balance payments.
- Cross-check your credit card statement
At times, your credit card statement may have petty errors, which you will have to rectify. For instance, a purchase of a good can be billed twice on your credit card. You will never detect such mistakes if you do not check your statement. Also, if you use your credit card for recurring payments, you will likely forget interest charges accrued on your credit card statement every month.
Checking your credit card statement allows you to know the transactions you have made in a billing cycle and investigate purchase transactions that have mistakenly been added to your account.
- Report lost or misused credit cards to your issuing bank
If you lose your credit card or receive a message about an unauthorized transaction, it is imperative that you immediately contact your issuing bank and block your credit card. If your credit card ends up in the wrong hands, you can lose your hard-earned money. Although you can prove the fraudulent activity, getting your money back is an arduous process.
While using your credit card, make sure to repay your balances on time to avoid hefty charges on your credit card. You can follow the above-said rules to make the best use of your credit card.
Krishna Murthy is the senior publisher at Finance XOD. He is not only the senior publisher but also the owner of Tricky Finance. Krishna Murthy was one of the brilliant students during his college days. He completed his education in MBA (Master of Business Administration), and he is currently managing the all workload for sharing the best banking information over the internet. The main purpose of starting Tricky Finance is to provide all the precious information related to businesses and the banks to his readers.