Credit cards boost the credit score of the user if used wisely. Likewise any mismanagement on part of the card user will hamper their credit worthiness. Credit cards can be both a bane and a boon. Even if one can manage without having a credit card having one ironically improves their credit score.
At the same time a badly used credit card can add to debt management problems. The way one uses it affects the future of their personal finances.
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It is time credit card users take time to understand how the card issuers and the credit bureaus view how one uses or not uses a credit card. Outlined are 5 areas that a cardholder should use to manage one’s credit wisely:-
1. Read the fine script:
After 2008 financial grid collapse banks and credit card issuers are trying to reduce their high risk exposure. As a result, higher fees is charged for any usage above the credit limit and delayed payments after due date.
The change in the charges or fee structure is usually reported but in a tiny script which is easy to miss. Avoid being charged extra by using the internet to periodically micromanage one’s account by registering for online statements.
Scan them for any changes in the charges and rates. If there is an overcharge call the card services and talk to them about it. Negotiating with them and citing previous payment history and longevity of customer relationship helps at times to waive the charges.
2. Understand balance transfers:
Card issuers will always find ways to attract customers. One of the popular methods is through zero percent balance transfer. However, this is a promotional offer and the 0% interest is limited to offer period which is usually six months.
After the six months the balanced amount attracts same interest as the regular outstanding balance. If the interest on the new card is higher, then transferred balance will attract more interest if not paid within the interest free period.
Besides, any usage beyond thirty percent of a person’s total available credit will affect their credit score. It is ideal to transfer balance on to a card which has no previous outstanding balance and pay it off within six months. In this manner a lot of money in form of charges and interest can be saved.
3. Use the interest free dates:
Cardholders can utilize the interest free period to use their credit to their advantage. They have time to receive their statement and make full payment without attracting any interest. This period is usually 51 days of interest free credit starting from the statement date to the due date.
The statement date is the day it is generated. For example if a statement is generated on 1st January then the due date will be 20th February. There is a misconception that all the purchases attract 51 days of interest free credit.
This is not the case for purchases made during the middle of statement period. In the same example, any usage made on 15th January will get only 36 days of interest free credit. So check for the important dates on your statement and keep a tab on all payments.
4. Negotiate for better rates:
If a cardholder has been a loyal and good customer, chances of negotiating for a competitive rate works. Banks and card issuers tend to pass such brownie points to retain good customers. Take advantage of being a good customer.
Credit card companies also offer reward points as freebies and promotional offers. Make use of such rewards to reduce the amount paid in terms of charges. A little saving on the cost of funding ones expenses is as good expense management practice.
5. Apply for credit that is useful:
Every time one applies for a credit card the credit score is checked. While maintaining two or three cards is relatively good for the credit score as it registers our payment history into account, too many can signal trouble. Future lenders can be wary of people who maintain too many cards. So don’t apply for a credit card unless required.
Credit cards are a necessary and not all together a bad product unless one makes the mistake of not using them properly. It is in the hands of cardholder not to give in to the urge of spending on leverage given by the Credit Card issuer. A disciplined spending habit can help in using the credit card in the most efficient manner.
The author is the founder and CEO of www.arthayantra.com