As most of us may be aware that credit cards offer great convenience to its users but there are certain aspects about them that require careful attention. Like any service or product these cards also come with certain rules and regulations which need to be adhered to. Not following these rules could result in the user being forced to pay fines, suffer inconvenience or there could be an adverse impact on the credit health of the user too. So if you are a new credit card user here are a few things that you need to know.
This is the first thing that you should know and in detail. What’s the point of having a fancy gadget if you don’t understand its functions fully and also the precautions that you need to take while using it? So as the name specifies a credit card provides you credit. You can use the card without the need to pay immediately or have an immediate debit from your account as in the case of a debit card. However this credit is for a limited period (usually around thirty day), after that the there is a grace period and at the end of this duration you need to pay the amount that you owe to the card company. Not doing so obviously has consequences which we discuss in the later part.
All credit card users should be clear about how interest on overdue amount is calculated. While enough attention may be provided to joining fee and renewal fee etc, this aspect may get ignored. Credit card debt is almost the most expensive, so if you miss paying on time you will have to pay a very high interest on the overdue amount. Interest on overdue amount or finance charges as they are called are calculated on average daily balance method. It is important that you read the terms and conditions and know what is the interest rate that would be levied on the overdue amount.
Each credit card company gives you the option to a minimum amount instead of the full amount due. This is usually a fixed percentage of the total amount due. If you pay the minimum amount due (MAD) then it is not reported as a late payment or a missed payment to credit rating agencies. This may save you from getting a bad CIBIL Score but remember you still have to pay the interest on the overdue amount. Though you will not be charged a late payment fee but finance charges cannot be evaded. So the option of paying the MAD must be used after careful consideration and full awareness about all its implications.
Credit cards offer credit which is like a debt that needs to be paid at a specified date or interval. So obviously activity related to them influences credit rating. While the timely payments aspect may be well known there is another aspect (that influences credit score) that first time users may not be aware of. Another aspect that influences the rating is credit utilization ratio. This ratio is the total usage in each cycle in proportion to the total credit limit sanctioned. This ratio is calculated for each card and also for all the cards if there is more than one card. A utilization ratio of more than 30% is not good for the rating as it an indicator of credit hungry behavior. So as a newbie make sure you are aware about how both aspects influence the credit rating,
In current times it is very important that you are fully aware about all aspects related to secure usage of credit cards. Each card comes with various security features which are helpful when you use the card online or physically. Apart from this, keeping in mind a few other aspects can help you stay safe. You should always ensure that the card is swiped in front of you, do not share your card details in response to mails or phone calls, always use secure sites when using the card online and so on.
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