It has been a consistent topic of debate whether credit card usage is a boon or a bane. Ever since its advent, there has been some old-school theory doing the rounds that using credit cards for essential transactions might lead the consumer to a debt trap. While the idea is not completely deniable, its advantages and disadvantages will likely impact individuals according to their usage patterns.
We can safely say that “to each, his own” is the formula that fits correctly in this context. So, a question about how we can optimize our credit card use is popping into your head. Well, there are some preventive measures that we can adopt to save ourselves from overspending and falling prey to the vicious cycle of debt. To understand them in detail, we must first comprehend the underlying factors influencing our creditworthiness when building a credit score profile.
- Maintaining an outstanding credit repayment history is the key to gaining the trust of potential lenders when applying for instant personal loans because it is this factor that accounts for more than 35% of the credit score. Late payment or crossing the overdraft limit leads to penalty charges and increased interest rates, leading to monthly budget constraints.
- Utilizing the credit line almost to its full potential, say more than 70-80% is a negative trait in the eyes of lenders and credit bureaus because it gives them a perception of lack of control from the user’s perspective in managing the funds. Also, they may assume that the users are burdened with a huge amount of debt, so they rely heavily on the funds generated through the issued credit facility.
- Minimum due payment is the bare minimum from the user’s end, and consistent repayment in this format might save the users from being labelled as defaulters. However, paying the outstanding within the interest-free period of forty-five days is always best. Getting habituated to minimum due payment will attract interest and other charges, increasing the overall amount owing for the payment.
- Always check the credit utilisation ratio, a metric considered for calculating the credit score by all organisations. The credit usage percentage is calculated by dividing the overall card limit by the amount spent. Ideally, this percentage is expected to be below 30% as a good credit score. The rewards and perks for active credit card holders are not worth it if they pay interest charges on their transactions. So, it is always better to pay the dues within the grace period to have an excellent credit score and be on the priority list of lenders because you never know when a financial obligation will be fulfilled, and you may need instant money.
- Automated payment can save you from the addiction of overspending and crossing the prescribed threshold. Banking apps these days have this unique feature where one can set the payment alert or automate the payment so that the fund is debited and paid to the respective account of vendors, billers, or merchants on a timely basis.
Suppose a person is capable of managing finances well. In that case, a credit card can be a great financial tool because it provides so many other benefits apart from giving access to instant funds availability through unsecured loan. Interest-free EMIs, reward points, discounts & various other festive offers and perks are all included in this.
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