Using a credit card for the first time? Know the do's and dont's of it.
Credit cards have become one of the most important revenue sources for their business.
In this era, owning a credit card is much of risk than a luxury or comfort. Risk because most of the first time users don't know the policies, guidelines, purpose, its effects on your credit history and CIBIL score and what not.
Almost every bank and an NBFC issues a credit card. Which are again issued by top payment companies like MasterCard and Visa predominantly. Others like GE Financial(Synchrony), Mitsubishi, RuPay, and have joined to this space on the bank on the growing millennials who are seeking credit cards.
There are just over 4 crore credit cards users in India, with close to 4 million new users joining each year. The market is dominated by HDFC Bank in India, who issues to almost anybody and more than 75% of the first time credit card holders use HDFCs credit card rest join the legacy.
Getting a credit card is very easy as the companies make it easier for its customers to get a card without any information regarding the usage of the cards, or process that's held by RBI and SEBI and the no orientation regarding the cards except the offers.
No wonder, credit card holders don't know what set of rules they're agreeing to. Some banks even have the ability to deduct the amount without any prior notice(which is a criminal act prescribed by RBI), some banks ruin the credit history of the cardholder which makes them ineligible for any future credit related transaction, in fact banks send out a legal notice to the cardholder if the payment is late or not done.
Since you're a first-time credit card holder, keep in mind these best practices
- Don't spend more (Spend it in your limit)
Credit card companies lure cardholders in spending more and more amount in lieu of getting rewards, cash back, offers, and promotion. It's a tactic to get you to use it more often. But don't be over-dependent on it as they just want to ruin your spending habits.
- Don't delay your payments
There is a stipulated date for your credit payments which is linked to your PAN card. Even if one payment is delayed it hurts your CIBIL score badly and gets your CIBIL rating down.
- Don't go the 5% rule
In case you are not funded with enough cash banks are regulated by RBI to collect at least 5% of the total credit for the payment. Payment of 5% of credit amount is good, but it will add interest, long term charges, affect credit history and your inability to pay the credit back. Which again affect your CIBIL score.
- Don't withdraw cash
Withdrawing cash from a credit card can be as equal as inviting a loan with interest as high as 40%. Because credit card themselves discourage to dispense cash from cards. In some cases after a period of time, the interest is calculated per day basis too that to 2.5% per day.
Avoid these acts while using a credit card. Apart from these numerous benefits are attached to using a credit card, but these are not monetary benefits but are useful for long term
- Not using a credit card until 26-28 age lowers your chances of getting a credit card
- With a credit card, you become a member of the financial credit market
- With your credit score being high(using it diligently) will help you avail all sorts of credit requirements in the future.
Keep in mind, a free credit card issued by a bank is also charged with the annual fee of the card without any prior information.
In this era, owning a credit card is much of risk than a luxury or comfort. Risk because most of the first time users don't know the policies, guidelines, purpose, its effects on your credit history and CIBIL score and what not.
Almost every bank and an NBFC issues a credit card. Which are again issued by top payment companies like MasterCard and Visa predominantly. Others like GE Financial(Synchrony), Mitsubishi, RuPay, and have joined to this space on the bank on the growing millennials who are seeking credit cards.
The biggest risk with credit card usage is not understanding the terms on which the credit card was issued.
When used as it is intended to, a credit card is a cost-free, short-term loan; provided you pay the credit card balance on time. If you don’t, it becomes a high-cost debt.
There are just over 4 crore credit cards users in India, with close to 4 million new users joining each year. The market is dominated by HDFC Bank in India, who issues to almost anybody and more than 75% of the first time credit card holders use HDFCs credit card rest join the legacy.
Getting a credit card is very easy as the companies make it easier for its customers to get a card without any information regarding the usage of the cards, or process that's held by RBI and SEBI and the no orientation regarding the cards except the offers.
No wonder, credit card holders don't know what set of rules they're agreeing to. Some banks even have the ability to deduct the amount without any prior notice(which is a criminal act prescribed by RBI), some banks ruin the credit history of the cardholder which makes them ineligible for any future credit related transaction, in fact banks send out a legal notice to the cardholder if the payment is late or not done.
Since you're a first-time credit card holder, keep in mind these best practices
- Don't spend more (Spend it in your limit)
Credit card companies lure cardholders in spending more and more amount in lieu of getting rewards, cash back, offers, and promotion. It's a tactic to get you to use it more often. But don't be over-dependent on it as they just want to ruin your spending habits.
- Don't delay your payments
There is a stipulated date for your credit payments which is linked to your PAN card. Even if one payment is delayed it hurts your CIBIL score badly and gets your CIBIL rating down.
- Don't go the 5% rule
In case you are not funded with enough cash banks are regulated by RBI to collect at least 5% of the total credit for the payment. Payment of 5% of credit amount is good, but it will add interest, long term charges, affect credit history and your inability to pay the credit back. Which again affect your CIBIL score.
- Don't withdraw cash
Withdrawing cash from a credit card can be as equal as inviting a loan with interest as high as 40%. Because credit card themselves discourage to dispense cash from cards. In some cases after a period of time, the interest is calculated per day basis too that to 2.5% per day.
Avoid these acts while using a credit card. Apart from these numerous benefits are attached to using a credit card, but these are not monetary benefits but are useful for long term
- Not using a credit card until 26-28 age lowers your chances of getting a credit card
- With a credit card, you become a member of the financial credit market
- With your credit score being high(using it diligently) will help you avail all sorts of credit requirements in the future.
Use your credit card wisely, It's a key to your financial future. Restricting your credit card usage to well within your credit limit, making payments on time, staying clear of paying only the minimum amount due—are all positive behaviors that will improve your credit profile and get you benefits such as lower interest rates on loans and higher loan sanction in the future. Understand the conditions on your bank's terms and conditions on the card. Offers come and go, terms and conditions are one thing that remains back with the card issuers.
Keep in mind, a free credit card issued by a bank is also charged with the annual fee of the card without any prior information.
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