Use Credit Just When Benefits Outweigh the Costs
Though most of you cannot be lenders, we are bound to be credit borrowers as of the system we reside in. In the present day’s world, the considerable rise in demand for all types of services and products has fuelled the credit demand.
Misuse and uses of credit
Use of credit comes with 2 facets – on one side, it endows you with instant advantages by assisting you meet your aspirations and needs and on the contrary, it exerts financial costs and psychological impacts, if not managed properly. Thus, it is recommended to use credit just when its benefits outweigh costs. Credit uses are massive that ranges anywhere between medical exigencies, education requirements, travel exigencies, to meeting instant personal requirements, etc. Credit cards are generally handy in most of such scenarios.
While credit cards are convenient and are helpful in times of requirement, their massive misuse can impact your finances, dilute your credibility and make you bankrupt. Just as credit cards hold a higher limit, you tend to overspend. Also, many of you hold the tendency of paying only the minimum due amount. The liability becomes massive after some time. If you fail to make repayment of your credit card dues on time, then it may impact your credit score. For instance, suppose, if you have a Bajaj credit card and HDFC credit card, then Bajaj CIBIL score will be conducted and HDFC CIBIL score will be conducted, respectively, by the issuers to see your financial standing. If your financial standing is poor, then your credit card may be deactivated, which further results in a lower credit score.
Manage the health of your credit
A strong understanding about your credit and how it can be managed is one of the prudent keys of becoming a credit healthy individual. You must judiciously use the loan or credit option available. You must build a strong credit score consciously to get a higher credit at a lower interest rate, in the scenario of any exigency. It is crucial for you to manage your finances well to avoid facing a scenario that would need external assistance, like an improvement agency and credit counselling. While using credit permits you to spend more on goods, it lowers the funds you have for your future needs, as part of your income in the future gets diverted to the goods and services you purchase.
Important tips to manage your credit wisely –
Always ensure to pay your card bills on time –
Pay your credit EMIs regularly. Even a single default may damage your score and thus your credibility. Also, it is a must for you to pay your card dues in full (avoid making payment of just the MAD (minimum amount due)).
Keep track of your score –
If you think your credit card details are compromised, take this up instantly with the issuer that has issued the credit card.
Avoid using a lot of credit cards –
Avoid treating your credit card as easy money. Overexposure to credit can get you in a debt trap.
Also Check: HDFC CIBIL Score
Avoid purchasing unnecessary items –
Do not spend on goods and services you do not require, just because you have it with you. Note that, no matter it is available to you on credit at present, you must repay it on time in liquid money.
∙ Always try to increase your down payment when you avail a loan so that your month-on-month liability does not eat up your savings.
∙ Finally, the credit does not enhance your buying power.
It only brings down your future buying power and endows you with a false impression that the same has been enhanced.
So, a strong credit score and accessibility to credit are crucial powerful assets that you have. With the credit at disposal, you can get access to financing terms and money saving resources. If you can wisely manage your credit, then you will be able to earn rewards as well as save on the interest constituent. All of this can allow you to increase your credit score considerably. Here’s all you must do when you hold a credit card –
Take benefit of card to gain higher rewards –
One of the major benefits of a good credit is it allows you to qualify for credit cards that are rewarding including the ones providing reward points as an incentive for spending using your card. Such rewards are paid out as a percentage of the card spending and may include anything between frequent flyer miles and travel vouchers to discounts applied. Over time such rewards may assist offset the cost incurred in future buys and put a little extra money to your pocket.
Request for periodic limit enhancements to strengthen your score –
A strong credit score allows you to get good credit, particularly when you require a higher limit. If you have been paying your card dues on time and hold a low credit utilization ratio or CUR, you may be eligible for an increment in your credit card limit.
A credit card limit enhancement can help to boost your score in various ways. Firstly, the additional available credit can reduce your thorough credit utilization ratio. Simultaneously, the enhanced limit has a good impact on your credit report as it shows you as a disciplined borrower.
When availing a credit card limit enhancement, it is crucial for you to know how the card company does their research to understand your background with credit to decide if you are eligible for further credit. Many of the companies use a hard enquiry method that shows up on your credit report as a hard enquiry and may lower your credit score minutely. So, ensure to not conduct multiple credit enquiries as multiple enquiries may make the financial institution raise multiple credit checks, which would in a way reduce your credit score massively and this would indirectly also lower your eligibility chances for the credit you have currently applied for. So, just apply with 2-3 financial institutions if you require any credit as doing so would keep your credit score on a good level and keep your eligibility chances for credit intact.
