You will likely have some questions about credit cards if you are new to credit. As a new user of credit cards, there is much information to be learned, and a lack of knowledge can result in unnecessary expenses.
We will cover all the fundamentals of credit cards in this guide for beginners. Here, you will discover how credit cards function, how to choose the best first credit card, and many other facts you need to know about how to use credit cards.
What Is a Credit Card?
Credit cards are physical cards that may be used for making purchases, paying bills, or withdrawing cash, depending on the card. The easiest way to think about a credit card is a short-term loan. You are given a credit limit as soon as you open an account with a credit card company. In essence, it is a sum of money that your credit card company will allow you to use to make purchases or pay your bills.
As you charge items to the card, your available credit is reduced. Afterward, you will be required to repay your credit card company what you have spent from your credit limit.
How To Use Credit Card?
A credit card may be used to purchase goods and services online or in stores and pay bills. Your credit card information is sent to the merchant’s bank when you purchase with either one. Once the bank has received authorization from the credit card network, the transaction is completed. Your card issuer’s responsibility is to verify your information and either approve or decline the transaction.
When your transaction is approved, your card will be charged the transaction amount, and the amount will reduce the available credit. Your card issuer will send you a statement at the end of each billing cycle showing all transactions for that month, the previous balance and the new balance, the minimum payment due, and the due date.
The grace period refers to the period between the date you purchase with your card and the date that appears on your statement as the due date. For the duration of this period, no interest will be charged if the bill is paid in full by the due date.
In contrast, your credit card company may charge you interest if you carry a balance from month to month. Accordingly, your credit card’s annual percentage rate, or APR, reflects the cost of carrying a balance on an annualized basis. In addition to your interest rate, your APR includes other costs associated with your card, such as an annual fee.
Variable interest rates are associated with credit cards tied to the prime rate. The CARD Act 2009 sets strict guidelines on when credit card companies can raise your interest rate and when they cannot. This means your card’s APR can change over time.
Here are some tips on how to use your credit card wisely.
Set a reasonable credit limit
Did you know that you can adjust the credit limit on your credit card? You should request that your creditor set a credit limit to allow you to make your payments on time before the due date. You may overspend if your credit limit is too high, while a credit limit that is too low may prevent you from completing essential purchases. It is imperative that you set an appropriate credit limit; if you fail to pay your credit card bills on time, your credit score will be negatively affected.
Take advantage of easy loans.
Are you aware that the transactions you make on your credit card can be used to help you get a loan in a hurry? You will indeed be able to apply for an unsecured loan on your Credit Card limit if you have a Credit Card. Your spending history, transaction patterns, and payment history will play a significant role in enabling you to use this facility. If you have an HDFC Bank credit card, you can apply for a loan with EasyEMI and get the money credited into your account the same day. In addition, you don’t have to submit any documents for this loan, and the repayment period is flexible, making it much easier for you to manage.
Keep a close eye on your expenditures.
You may find yourself in a debt trap if you ignore your spending. Also you should carefully monitor your credit card expenditures. You should keep a handwritten diary or a list of all the expenses incurred when you use your card. It will reduce the likelihood of the tendency to splurge if this is performed rigorously. Your credit card now allows you to set up transaction limits for specific purchases, so staying on track with your spending goals has never been easier.
Ensure that credit card bills are paid on time
Paying your bills on time is a must every month. This seems obvious, but many people tend to ignore it. By not paying your credit card bills on time, you will be charged with unjustified interest rates, finance charges, and penalties that can negatively affect your budget. Not paying on time can also have a detrimental effect on your credit score, which could be a problem if you plan on applying for a loan in the future.
Consider using contactless credit cards.
In the present pandemic situation, the best way to prevent infection is to minimize contact with others. A contactless HDFC Bank Credit Card appears to be a valuable product at such a time. Instead of swiping your credit card and entering your PIN, you can tap the contactless credit card against the POS (point of sale) device to complete the transaction within seconds. By doing so, the check-out process at the billing counters is sped up.
Regularly review your credit card statements.
Ensure that you keep a close watch on the statements of your credit cards. It is good to add up the statements billed to you and the payment receipts you received at the time of check-out/point of sale. This will assist you with the management and prioritization of your financial affairs. Moreover, it will assist you in detecting and avoiding any charges that might have gone unnoticed earlier. In some cases, the merchant name may appear differently on your Credit Card statement, so you must check each transaction separately.
Make use of free offers and rewards.
From time to time, credit card companies provide rewards and incentives. These can take the form of cashback or vouchers for free goods. Your bank can provide you with the most up-to-date offers. Many people are unaware of some of the standard benefits of credit cards.
As an example, most Indian credit cards offer complimentary insurance against accidental death or permanent disability. Furthermore, your Reward Points can be used to purchase items you need.