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Credit cards are a great financial invention. They let you pay for your expenses, repay them later and offer exciting rewards every time you use it. However, to get the most out of your credit card, it is important to use it wisely. In this article, we have given tips on how to use your credit card to get maximum benefit.
Where Can a Credit Card be Used?
A credit card can be used for various expenses, from bill payments to shopping and travel. Below are some of the uses of credit cards.
Bills:
You can pay your utility bills, such as electricity, water and phone bills, through your credit card. Your credit card provider has the option to automate your bill payments so you can never miss out on a payment and avoid late fees and penalties.
Rent:
Rent is one of the major expenses that one incurs every month. Sometimes, you may find it difficult to pay your rent. In such circ*mstances, you can pay your rent through your credit card using certain platforms. However, one should be wary of paying rent through a credit card as non-repayment or late payment can lead to high interest.
Taxes:
The government allowed paying taxes through credit cards to encourage non-cash transactions. You will get an acknowledgement almost immediately after paying taxes through a credit card.
Travel:
You can book flight tickets, train tickets, bus tickets, cabs, and hotels, buy travel insurance, and pay for other travel-related expenses using your credit card. Credit card companies introduced travel credit cards that offer multiple rewards to users, such as additional miles and complimentary lounge access.
Shopping:
Whether you are a frequent shopper or not, you can use your credit cards to shop online and offline. All departmental stores, malls, and other offline and online stores accept credit cards. There are hardly a handful of stores that do not accept credit cards these days. Banks and credit card issuers have created a unique card for frequent shoppers. Each transaction done using this card will give higher rewards and cashback.
Entertainment:
A credit card can be used to book movie tickets or pay for subscriptions to various online platforms or clubs. There are separate cards for booking movie tickets that give huge discounts, free tickets, and other perks that can help save a lot on your entertainment expenses.
Food:
Banks tie up with restaurants, hotels, and resorts to offer special discounts on certain credit cards. Moreover, some premium credit cards also give exclusive access to premium restaurants. There are also exclusive rewards and cashback on dining out or ordering food at home.
How to Use a Credit Card to Maximise Benefits?
When used wisely, a credit card can help you save a lot on your expenses. Moreover, you can make the most of your credit card by maximising your benefits by following the tips given below.
Choose the Right Card
You must choose the right card to maximise the benefits of your credit cards. When choosing a credit card, you must assess your spending patterns and choose a card that complements your spending pattern. For example, if you travel a lot to make the most of your travel spending, a travel credit card is better than a shopping or rewards card. Have multiple credit cards for different purposes, such as travel, entertainment, and shopping. Hence, you can use different cards for different purposes and earn higher rewards.
Look for Welcome Benefits
Almost all credit cards offer welcome benefits like cashback, rewards, discounts, and other perks. These can help you save a lot if utilised correctly. Since no two cards offer similar perks, assess all the available options before choosing a card that offers maximum benefits according to your lifestyle and spending patterns.
Use the Card
Owning a credit card doesn’t offer you rewards and cashback until you use it. Hence, you must use your card for all expenses to earn maximum rewards. Using your card occasionally will not help you earn high rewards. The more you use the card, the higher the rewards and the faster you can redeem them.
Make Use of the Interest-Free Period
Credit cards come with an interest-free period that ranges between 20 to 55 days. By timing your purchase, you can take advantage of this interest-free period. The longer the interest-free period, the easier it is for you to pay your dues on time. For instance, for a monthly billing cycle, you have close to 45 days to repay your dues. If your bill is generated on the 18th of every month, and you use your card right after the bill is generated, then you have 45 days of time to pay back the dues.
Pay Bills on Time
Paying your credit card bills on time is important to maintain a good credit score. By paying the bills on time, you can avoid late payment interest and penalty, which is usually around 40% per annum. Moreover, by paying your bills on time, your creditworthiness will improve.
Pay Full Amount
Credit cards allow you to pay only a minimum amount before the due date. The remaining balance remains outstanding and attracts interest of around 40% per annum. To avoid paying interest, it is best to pay your full amount rather than the minimum balance.
Understand the Benefits of Your Credit Card
All credit cards offer some kind of reward in the form of cashback, vouchers, and discounts. However, to make the most of your credit card, you must know how to use these rewards. Banks can put a restriction on the number of rewards points that can be earned or redeemed during a month. Moreover, reward points or vouchers have an expiry date. Sometimes, it is best to convert your reward points into cash as it can help pay your credit card bill.
Redeem Rewards Points
The reward points you earn on your credit card can be redeemed to purchase something from the bank’s catalogue or get vouchers from an online platform. To use the reward points, you must keep track of them and redeem them before they expire.
Upgrade Your Credit Card As Per Requirement
Based on your usage, you can upgrade your credit card. An upgraded credit card has higher rewards, cashback, and other complimentary perks, such as access to airport lounges or free vouchers for a brand or a website that were not available previously.
Close Unnecessary Credit Cards
The cards which you aren’t using or the ones that do not offer a lot of rewards must be closed. This is because having too many credit cards can be difficult to manage. Hence, it is best to stick to a maximum of two to three credit cards.
Keep a Check on Your Credit Report
It is important to take time to check and analyse your credit report. This is because it will help you plan your expenses better, identify any errors such as fraudulent transactions, and check whether all the details mentioned in the report are right or not.
Take Into Consideration the Joining Fees and Renewal Fees
Credit cards charge a joining fee and an annual fee from users. For certain credit cards, these charges are zero. However, in most cases, banks charge a fee, which sometimes is higher than the benefit you get from it. To get the maximum benefit from your credit card, choose a card with low fees or one with a fee waiver option.
Don’t Withdraw Money Using a Credit Card
Almost all credit cards allow you to withdraw cash. However, you shouldn’t withdraw cash using your credit card, not even in emergencies. This is because cash withdrawal involves a lot of additional expenses, such as a withdrawal fee, which is around 3%. Moreover, banks levy interest on cash withdrawal right from the day you withdraw cash. Hence, avoiding withdrawing cash using a credit card at any cost is best.
Things to Keep in Mind While Using a Credit Card
When using a credit card, you must keep the following things in mind.
Keep Track of Your Expenses
When you use a credit card, you must keep a tab of your expenses. Just because the money isn’t getting deducted from your account immediately doesn’t mean you can spend money carelessly. Ultimately, the money you spend using a credit card must be paid within the next 45 to 50 days or the interest-free period.
Do Not Max Out the Credit Limit
An ideal credit card utilisation rate is 30%. Although you can use more than 30% of your credit limit, it is best to stick to 30%. This is because a low credit utilisation ratio will improve your credit score. A high credit score will improve your chances of getting loans at bargain interest rates.
Plan Your Repayment
Before using your credit card, you must plan your repayment. It is always best to repay your credit card dues before the due date, as it will be reflected in your credit history. This ultimately will help you get loans at lower interest rates. If you are making a big ticket purchase and can’t repay the entire amount in one instalment, you can opt for EMI (Equated Monthly Instalment) right at the time of purchase. This will reduce your financial burden and pay your bills in small amounts. However, this shouldn’t be a regular practice as the interest payments will be high.
Use Credit Cards Only at Trusted Merchants
Credit card frauds are rising, and we hear about new credit card scams almost every day. Although banks have zero liability on credit cards if you report a stolen card, it is best to use a credit card with caution. Use your card only at trusted merchants, both online and offline. This will ensure that your credit card details are not exposed to fraudulent individuals.
Keep Your Credit Card Details Securely
Never disclose your credit card details to anyone. If you are sharing your credit card information with someone, make sure the call is initiated from your end. Credit card holders are highly vulnerable to growing scams and frauds. You must take necessary steps such as shopping from your own device at trusted merchants’ websites or stores, paying using a third-party digital wallet instead of shopping directly through your credit card, changing passwords regularly, and using two-factor authentication.
Read the Terms and Conditions Carefully
Before using a credit card, it is important to read the terms and conditions. In these terms and conditions, the banks specify the fee structure and the restrictions and expiry of benefits such as rewards and cashback. By understanding the terms and conditions, you can use your credit card wisely.
A credit card is a great financial tool that can help you save on expenses, improve your credit score, and get free rewards. Hence, it is important to select a card that will suit your spending pattern. Only then can you use your credit card wisely. The above tips will help you plan your credit card usage, which will ultimately help maximise your benefits.
Frequently Asked Questions
How can I benefit the most from my credit card?
You can benefit the most from your credit card by spending within your means and paying off the outstanding amount in full to avoid paying interest and get maximum rewards.
How do I get maximum benefits on my credit card?
You can get maximum benefits from your credit card only when you use it regularly. The more the usage, the higher will be the rewards and cashback you can earn. Without using your card, you cannot get benefits from it.
What is the smartest way to use a credit card?
You can use your credit card for all your expenses to get maximum rewards. However, all the benefits will be truly rewarding if you pay off your balance in full and avoid paying interest.
Are three credit cards too many?
Having a maximum of two to three credit cards is considered ideal. This is because banks offer different cards for different purposes. For example, fuel cards give maximum benefits on fuel spending, travel cards help save on travel expenses, and shopping cards give you maximum rewards. So you can have one card each for each purpose, but make sure you limit the number of cards to a maximum of 3 to manage your money better.
Can I use 100% of my credit card?
The ideal credit utilisation limit is 30%. Anything more can harm your credit score and damage your finances. Never max out on your credit card usage, even in case of emergencies. Remember, a credit card is the money you borrow from the bank and must be repaid within the next 45 days.
What is the 30 credit card rule?
The 30 credit card rule is the rule about credit utilisation. You should use only 30% of the credit card limit to maintain a good credit score. A high credit utilisation limit will indicate a high dependence on credit to pay for your expenses. This ultimately reduces your credit score and creditworthiness as banks think you have unstable finances. Hence, it is best to keep your credit utilisation under 30%.
