Credit card usage in india has increased steadily in past two decades, though a big jump came in the past five years. The number of credit cards issued more than double from 2.98 core in 2017 to 7.02 core by January 2022. The usage has increased, but many cardholders remain blissfully unaware of the benefits or the pitfalls of the 2*3 inch piece of plastic in thier wallets. While credit cards are handy to make purchases, they also offer several other advantages if you use them benefits of your credit card.
1. Protection against fraud
Creadit cards are convenient to pay for purchase, but if you aren’t careful, a hacker might steal your card details for fraudulent transactions. To avoid being swindled, opt for two-factor authentication wherein you get an OTP on your mobile phone or email ID to approve any credit transaction. Fortunatley, in India, you get SMS alerts every time your card is swiped, so if you notice any unathorised transaction, block your credit immediately by either calling the customer care service of the bank or via net/ mobile banking. Next, raise a complaint with the credit issuer within 48 hours and report the crime to national helpline 1930. If the bank is assured that your card was misused by someone else, it will reimburse your money.
2. Set transaction limits
Another way to avoid your credit being misused is by setting limits on your spending amounts. This is especially essential if you have opted for the Wi-fi feature available on your card s just a single tap debits money from your account. So, it’s a good idea to set a low limit ( about rupees 1,000 - 2,000 ) for such tap transactions while higher amounts will requires swiping the card and your PIN. It is also important to set limits for online transactions, even though online purchase require an OTP, which is very risky. So, if you aen’t travelling abroad or making an overseas purchase, deactivate the international use on your card. It can be reactivated whenever required
3. Use 2-3 cards for longer credit period
Express suggest that you should have 2-3 credit cards, so that you have financial flexibility if there’s any problem with a particular card. This also enables you to split a big expenditure so that you don’t maximise the credit limit on a single card. You can also leverage multiple cards to get a longer interest-free credit period. In the graphic below, you can see that you can use on card to pay for purchases till the 15th of the month, then switch to the second caed till 25th and then move on to the thrid card. If the bill payments on the cards are due on the 15th, 25th and 30th of the next month, respectively, you will be able to maximise your interest-free period on each card. This will also allow you to juggle your expenses and pay off your bills comfortably rather than be stressed about paying a massive bill at one go.
4 Auto-pay credit card dues in full
Always pay your credit card bills in full each month before the due date to avoid late free as well as being penalised with high interest charges, ranging from 24%-46% per annum, on the outstanding amount on your card. The best way to ensure you don’t miss a payment is to opt fot the auto-pay facility on your card. you can choose to automatically pay the minimum amount, a set custom amount, or the full payment. Ensure that you pay at least minimum so that you aren’t slapped with a penalty for non-payment, and your credit score remains intact. However, don’t fall into the minimum due’ trap you will accrue high interest on your outstanding amount, which can build to a high debt over time. Raj khosla, Founder and MD of Mymoneymantra.com
says, “If you roll over your credit card bill, the card issuer will charge 2-4% not only on the outstanding amount, but also on new purchases in the following month.”
Even if you have selected auto-pay, you should still review your credit card statement an check that you have the funds needed for the automatic
deduction or your bank will charge a return payment feee. Repeatedly defaulting on payments can impact your credit score negatively.
5. Choose a card according to your consumption pattern
Credit card issuers lure customers by offering variety of joining benefits and co-branded deals. So, you need to be smart about which ones work best for you as your card usage should be aligned to your spending habit. Here’s a short quiz to help you figure out which card you should choose.
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Since your credit card usage is low or you seem to still be on the learning curve, opt for a card that has Zero annul fee and low interest rate. Such a card will offer you an additional mode of payment, other than cash and UPI payments, While also helping you build your credit score. Instead of focusing on joining offers or a jumble of reward points, choose a card that offers cashback as reward. This will allow you to convert your accumulated points into cash, which you can use to pay off your credit card bill.
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As you seem to be comfortable swiping your card, you could go for three of them. Of these, One should be card that offers you a waiver on fuel surcharges or accelerated points on fuel usage. The other two can be singular or co-branded cards that offer you discounts on grocery shopping, online shopping or dining, depending on what you spend most on. Preferably, get one that doesn’t collect a redemption fee or have an expiry date for reward points.
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Your credit card usage is frequent. So, you can even opt for a premium card that charges a joining or annual fee. This could be more beneficial as these cards offer accelerated reward points, such as 5 reward points on spending 100 rupees rather than just 2 points offered by basic card. They also offer you superior benefits like access to airport lounges, priority pass memberships, low foreign currency markup fee of only 2%, etc.
6. Use all your cards to improve your credit score
An easy way to improve your credit score is to have a low credit utilization ratio. In simple terms, it mean how much of your available credit you are using. So, if your total credit limit on all your card is ₹6 lakhs and your outstanding amount is only ₹ 60,000, your credit utilisation ratio would be 10%. But if your outstanding amount is ₹2 lakh, the ratio increase to about 33%, which is high. A Healthy ratio is below 30%, while the best is considered to be less than 10%. Says Dinesh Rohira, Founder and CEO of nance.com, "having 2-3 crads helps you get a higher credit limits as well as spread out your purchases, thus helping to have a good credit it utilisation ratio. over the years, this helps you to build your credit histroy and CIBIL score. This, in turn, allows you to have an even higher credit limit, which can be useful in emergencise."
7. Cashback and reward points
CASHBACK AND REWARD points are the big lures banks use to get people to apply for credit cards. These can be beneficail if you know how to use them right. For instance, if you travel frequently, opt for a co-branded card with an airline where you shopping can help you acquire "air miles"
that can be redeemed against flight bookings. If you often shop from a particular websites, you can choose a co-branded card that offers you cashback such as the Amazon pay ICICI credit card that offers you up 5% cashback on Amazon spends, and this money can be used aganist future Amazon purchases.
Trypically, you can save anywhere between 0.25% to 3.3% on your expenses. However, the catch is that there may be restrictions on how you can use the reward points or cashback. For instance, there could be a minimum or maximum limit of points you can redeem, you may have to pay extra to redeem the reward points, or you may be able to use the cashback only on particular sites. Also keep in mind that reward points sometimes have an expiry date.
You canredeem your points for products, discount vouchers, air miles or cash. Says Rohira, "Cash unless you are going to use a discount voucher may expire before you're able to use it. Though the conversion rate of redeemption points is lower in case of cash compared to vouchers, the former is still more lucrative as you can use the cash to pay your credit card bill."'
8. Check all the benefits and risks
BERFORE APPLYING FOR a card , check out all the benefits you can squeeze out of it . Several premium cards come with an annual fee ranging from ₹1,000 tot ₹20,000 , but they also come with a host of benefits , such as priority check - in and access to airport lounges that have free wi - fi and dining services . For instance , the HDFC Bank Regalia Credit Card comes with 12 complimentary visits to airport lounges per calendar year within India , at both domestic and international terminals ( sixeach ) , and complimentary Priority Pass membership , Along with this , the card offers you a 24/ 7 concierge service , akin to having a personal assistant that can help to make your travel experience more convenient , especially if you're in a country where you're not familiar with the language . However , you must read the fine print care fully to avoid being burdened with hidden charges . A free card may have an annual fee or your reward point accumulation may differ according to where you swipe the card . For instance , the SimplyCLICK SBI Credit Card provides you points worth ₹2.50 on spending ₹100 on online shopping from its partners , and points worth only ₹1.50 on a spend of the same amount on other online shopping . In case of offline shopping , your point accumulation drops drastically to only worth 0.25 paisa per ₹100 spent.
Also, not all benefits are as impressive as they may seem at first glance, such as insur ance covers provided by some cards . Rohira says , " Be cognizant of the benefits , but they shouldn't be the criteria for choosing a card . While air accident covers , baggage loss or emergency hospitalisation can be helpful in emergencies , you can get all these and more at a cheaper rate of just ₹100-200 under a travel insurance policy . Also , there may be many rid ers attached to making an insurance claim on these cards . "
9 . Be wary of EMI transaction or cash withdrawals
A CREDIT CARD can be used to convert a big - ticket buy into EMI transactions after the purchase , which can be repaid over a flexible duration of 3-36 months . This can be done till your credit card bill's due date . However , these transactions aren't free as touted , and even ifa handful are , you will need to pay a processing fee , service charge , convenience fee , GST , etc. In most cases , the interest can be quite high and range from 13 -24 % . Says Khosla , " Credit card loans are some of the most expensive unsecured loans . If you have a good credit history , you could probably get a cheaper personal loan , consumer finance loan , or even opt for an overdraft facility on your salary or FD . "
Also , the entire transacted amount is blocked against your credit limit , and not just the EMI amount . This means that the credit available to you for future use is lower , and this could also affect your credit utilisation ratio . These two reasons are also why you should never use your card to make cash withdrawals unless in case of a dire emergency when you've exhausted all other options .
Are credit card EMI transaction beneficial?
Written by preranjan Kumar Rai
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