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Credit cards help you track spending

With a credit card, you have convenience and control, and sometimes you can save if you use it wisely. It kicks off an individual's financial discipline journey and other benefits could include reward points, discounts, cashbacks, etc. Our spending is almost instantly alerted to us, which lets us keep track of our finances. Using paper money can make it hard to track spending patterns, although bank statements can help.

The downside to using a credit card is the temptation to overspend, given that the credit limit allowed is usually quite generous. This could lead you into a debt trap. It is important that as consumers we understand the basics of how credit cards work, as well as cultivate the discipline to manage our finances so that we can use credit cards effectively and avoid any financial pitfalls.

Here are a few ways on how effective credit card usage can improve your credit score.

Choose the appropriate card

Research carefully and identify the card that suits your income and needs among the plethora of options available today. If you're choosing a card for fuel, consider the card that has co-branding with a fuel company.

Read the fine print. Review the terms and limits regarding rewards, interest rates, late fee for late or missed payments, annual fees, benefits, and credit limit offered. Reading the late payment terms carefully is important since this is one of the main areas people ignore, leading to inconveniences over time.

Also read | Age of fintechs: These financial intermediaries make life easier but there're caveats too

Ensure timely repayments

This one factor can have a significant impact on your credit score. Check the due date for the monthly bill and set a reminder on your phone or automate payments to ensure you never miss a payment deadline. Credit card companies tend to levy heavy interest rates if you miss the deadline.

Pay the full amount due

Just paying the minimum amount due may not impact your credit history as it is not considered as a default. It does, however, attract interest and other charges, which may increase the total outstanding balance. The key is to maintain liquidity to make sure you always clear the full amount each billing cycle.

Check your bill regularly

Take a careful look at your bill to ensure you are aware of your itemised expenses as you may find there are purchases you can do without. It also allows you to check your statement for discrepancies and address them with your card issuer.

Spend responsibly

It is very easy to get swept away by the convenience a credit card offers, especially during the festive season when sales are on and deals are plentiful. Be cautious and only buy what you need.

Also read: How many credit cards should you have?

Avoid opening numerous credit card accounts at once

Keeping track of repayments is difficult when there are multiple active accounts. Furthermore, outstanding credit lines can make you appear riskier to lenders.

In pursuit of credit, financial discipline is the key because your credit history will automatically be good, which will give credit grantors the confidence to lend to you as your credit needs change over time.