Moneycontrol
Apr 16, 2018 04:45 PM IST | Source: Moneycontrol.com

Five ways to utilise your first credit card without falling into debt trap

Change the PIN and register for two factor authentication by following the process online.

Maiden credit card is an enabler for the millennial population in India. It lets them access the world of credit with much ease in addition to making payments. As the credit card lets you access the inaccessible world with the leverage on offer, it must be used in a responsible manner. Credit cards come with high costs associated with it and failure to clear the dues may be the beginning of the journey to debt trap. Timely repayment of credit card dues help you build credit score.

If you have got your maiden credit card, here are five things you must know before you swipe your card.

Pin the PIN

Each credit card comes with the personal identification number (PIN). Never share this number with anyone. For that matter you need not quote the sixteen digit credit card number, card expiry date and the CVV number in any conversation, even in a conversation with the bank.

Change the PIN and register for two factor authentication by following the process online. Memorise the PIN and use it for your transactions. Two factor authentication is used when you are transacting online.

The limits

Each credit card comes with ‘limits’ set. You cannot spend more than the credit limit set. If the credit limit is set at Rs 2 lakh, and you have outstanding bill of Rs 1 lakh, then you can spend Rs 1 lakh more. Some banks also set separate cash withdrawal limit, which is typically less than the credit limit. As the cash withdrawal comes with high charges, one should avoid withdrawing cash on credit cards, as far as possible.

To ensure that you enjoy good credit score, do not max out your credit card usage. Credit utilisation ratio of around 30% is seen healthy by credit bureaus. Credit utilisation ratio is seen for each card and all cards opened in your name. It is calculated by dividing the credit card outstanding with the credit card limit.

So if you have a credit card with Rs 2 lakh limit, as far as possible avoid spending more than Rs 60000 in a month on that card. Occasionally you may overspend, but do not make it a habit. Reaching out to the maximum level of credit limit on your credit card, is seen as a credit hungry behaviour.

The dates

Bill date and pay by date are the two important dates you must know. Though the credit card issuing bank talks about 40 or 45 days to pay your bill, do not go by that blindly. If your bill date is 20th of the month and the bill due date is 5th of the next month and you swipe the card on 19th of the month, then you have only 18 days to pay off.

Bill date is the date on which the bill is generated and the pay by date is the date before which you are supposed to pay the bill. Do ensure that you pay off the bill in full. You can opt for a standing instruction to pay the bill in full by debiting your bank account. Ensure that you maintain adequate balance in your bank account.

The charges and rewards

Each credit card comes with charges. Do refer to the booklet given to you as part of the welcome kit. It enlists all the charges. If you are unsure about a charge, do have a word with the bank’s call-centre.

Do run through the cash back rules and rewards. Some banks charge ‘handling charges’ when you opt to encash rewards. There are conditions associated with the cash back in terms of the minimum spends, maximum cash back etc. Familiarise yourself with these norms.

The vital numbers

This may sound too basic. But a new credit card may put you in an awkward situation. What if the card is misplaced or stolen? Note down the call-centre numbers and the emergency assistance number to block the card. It will help you in such situations.
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