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Credit card companies offer numerous benefits and reward schemes to lure new customers. Every day you must receive a mail from any bank to buy a credit card, accept a credit card, which is offered to you complimentary or take a loan with lowest interest rate. Initially, these banks tell you that there is no fee levied on the card for membership, but these banks hardly tell you that the late fee charges, annual renewal fee or rate of interest linked for money borrowed. ICICI, HDFC, Citibank, SBI, and American Express are leading five issuers of the credit card in India. Each bank offers a range of rewards and benefits to their respective customers. Credit card offers easy access to money and generally individuals never consider the fact that they need to repay the amount they have borrowed from the bank in the form of shopping, making any other purchase, or making bill payments.
You should always remember that the credit cards are only good for short-term borrowing or if you know that you always have sufficient funds to repay your maximum bill amount or full bill amount before the billing cycle. Credit cards are always good tool to spend or borrow money for shorter duration. If you can’t afford to repay the amount in full before or on time, you will get trapped in the vivacious interest cycle of your card. Paying the minimum amount every month to use the credit card upto its limit is not a good idea. It will increase your outstanding amount and even the rate of interest levied on the outstanding balance. It is not the right way to use the credit card. However, banks like such customers. They are money churning machines for them. As they pay more interest on the outstanding amount and use credit card frequently for making payments. There are four things which one should avoid while making credit card payments.
Missed payments: While using a credit card be aware of the card limit as well the billing cycle of your credit card. If your credit card bill payment due date is 28th of every month and your salary credits on 7th of every month and you make your outstanding payments after 7th of every month. In such condition you end up paying higher interest on your credit card bill every month. You always forget that the monthly interest rate along with late payments are mounting up a high annual rate.
Exceeding credit limits: A credit card is offered to you with a certain spending limit. After reviewing your usage and payment habits, if bank feels that you are spending a good amount every month with your card, it will ask you to increase your credit limit or at times it automatically increases the limit of your card. Once you exceed your credit limit, your card issuer will charge you some extra fee of the overlimit amount. This way your card issuer will earn money on your extra billing and your credit score will be in negative. A bad credit score will affect your chances of getting loan in the future.
Check annual and other charges: At the time of issuing a card most of the banks offer you ‘Zero charge’. These are all marketing trick to lure the prospective customers. It might be bank will not charge any fee for the first year, but it will charge you some amount for renewal. There are also some hidden charges such as processing fee, fuel surcharge, late payment fee, money withdrawal charges. No bank executive will explain you these hidden charges before selling the cards.
Having more than one card: If you have a bad credit history and still you are applying for a new credit card from some other bank, it will create more problem for you. Although these banks don’t mind offering you a new credit card with a higher rate of interest as compared to normal rate of interest. Generally, these banks charge 13-15% rate of interest on the amount, but if you have a bad credit history, these banks may charge you somewhere around 18-20% as interest. Therefore, always check the rate of interest while buying or applying for a new card if you don’t have enough funds to make all payments on or before the time.
It is very much true that these cards have simplified your life as you can buy anything on credit card without giving much thought to your bank balance. But making these credit card payment mistakes and excessive use of card with late and faulty payments can create problems in long run and ruin your finance and savings.