Money Magazine - Every New Credit Card User Must Know This

Credit cards are excellent financial accessories that allow you to purchase goods without cash. But apart from being just another financial tool, they are a lot more. Using your credit card responsibly will help your build your credit score, provide you with cheaper insurance plans and even get loans at better interest rates. Moreover, by using credit cards you can earn rewards and discounts on everyday purchases.

While these reasons might have appeared very fancy and let us assume that you’ve already applied for your first credit card, as a first time user, there are also a number of important things that you should keep in mind before swiping your card.

Importance of Clearing the Credit Card Bill on Time

The most common problem with majority of the credit card holders is that they don’t pay their credit card bills on time. It is very important to pay all your credit card bills on time and in full, to ensure that you are not charged with a penalty or any other additional charges.

Interest rate of up to 40% and even more, along with a 10.30% service tax can be charged if you don’t pay the bill in full within the due date. Moreover, if you haven’t cleared the bill on time then there is a possibility that you might lose your next cycles’ interest-free period.

If you are not able to pay the bill in full, there is also a minimum amount that you should clear to continue using your card. However, if you are not able to clear that as well, an additional late payment charge of about Rs. 500-600 for outstanding bill of up to Rs. 20,000 can be charged. It can be higher for greater amounts.

Free Credit Cards are Not Really Free

There are a number of banks that give free or credit cards with no annual fees to attract customers and the word ‘’free’’ and ‘’no fee’’ are still very effective in India.

No, the banks are not lying when they say that they are giving away the credit card for free or they will not charge annual fees. But these cards generally carry an interest rate which is higher than other credit cards. Even the late payment charges of these credit cards are high. And the annual fee generally kicks in after a year or two.

Credit Cards have a Major Impact on your Credit Score

While a lot of people don’t even know what credit scores are, it is important to remember that how you use your credit card will have a huge impact on your credit score. Your credit score is a number which indicates your credit history.

If you are unable to pay your credit card bills on time, your credit score will be affected negatively. A poor credit score will make it difficult for you to take a new credit card or any type of loan in future. Even if a lender does agree to lend you a loan, you will be charged with a higher interest rate.

As you can see, there are a number of responsibilities that come along with a credit card. While there is no denying the fact that credit cards are indeed very helpful at times, remember the above mentioned points as well to make sure that their usage is actually convenient and not troublesome.