Big news for credit card users. These days, a lot of people are jumping on the credit card bandwagon. The main reason? You can buy stuff even if your bank account is running low. Credit cards essentially give you a short-term loan, and if you pay it back during the grace period, you won’t owe any interest.
Plus, there are tons of perks like offers, discounts, and rewards that come with credit cards. All these benefits are making credit cards super popular. But if you’re new to using one, there are a few things you need to keep in mind to avoid any regrets down the line.
Stick to using no more than 30% of your limit.
Even if your credit card limit is generous, try not to spend more than 30% of it. If you keep maxing out your card, banks might see you as financially unstable, which can hurt your CIBIL score. A lower score can lead to headaches when you want to take out a loan later. If you think 30% is too little, you can always request a higher limit, which will adjust that 30% accordingly.
When a bank gives you a credit card, it comes with a spending limit based on your income. The more you earn, the higher your limit tends to be. Your credit score, which tracks how well you pay back loans, also plays a significant role in determining your limit.
Banks take several factors into account before raising your credit limit. If you think your credit card limit is too low and you want to bump it up, it’s important to know that the decision hinges on whether you meet the bank’s criteria. They’ll look at your annual income, age, job stability, and current debt levels. Your credit history and credit score are also crucial in determining if your limit can be increased.
To boost your credit card limit, you’ll need to ask the bank for an increase. They’ll evaluate your income-to-expense ratio along with other factors. If you check all the boxes, they might just raise your limit. Alternatively, you could consider applying for a new, upgraded card.
Keep these points in mind as well:
Minimum vs. total due
There are two types of due amounts: total due and minimum due. Paying just the minimum keeps your card active, but you’ll rack up significant interest on the remaining balance, which is calculated on the total amount owed. So, it’s best to pay off the total due whenever possible.
Avoid closing your card abruptly
If you have multiple credit cards, don’t close one suddenly. Doing so can spike your credit utilization ratio since your available credit will drop. A higher utilization ratio can negatively impact your credit score. Even if you’re not using a card, it’s wise to keep it open and active.