Credit Cards are one of the most popular financial tools in the modern times. They work as an instant Personal Loan to some extent. Every Credit Card comes with a pre-approved limit according to the eligibility of the applicant and works on the principle of revolving credit. Wherein your available limit reduces every time you make a transaction using the Credit Card,and it is reinstated when you repay the bill every month. The available limit against each card is changed by the issuing bank regularly, based on the spending behavior of the holder.
Credit Cards enable you to make purchases online and offline as well as pay your bills, when you do not have adequate balance in your savings account and eliminates the need to borrow money from someone for urgent financial requirements. With the rapid expansion of the e-commerce sector, a large number of online platforms now offer incredible offers, rewards, freebies, bonuses,and cashback for particular transactions. You can also avail EMI (Equated Monthly Instalment) facility against your Credit Card at nominal interest rates for purchase of consumer durables online as well as offline. However, to be able to maximise the benefits from your Credit Card, you must exercise strict financial discipline. Cards usually carry very high-interest rates, which can go up to 42% p.a., so you must make it a point to repay the entire amount due every month. Otherwise, your interest costs will rise significantly. High credit utilisation ratio (more than 30% of total available limit)has an adverse effect on your credit score and makes you ineligible for loans in the near future. Also, you must not get carried away by some offers and should not make impulse purchases. Otherwise, you would end up with a debt, which you cannot afford to repay.
In the present age of a technology-driven financial services sector, getting a Credit Card has become relatively convenient. You can easily browse various online marketplaces for financial products as well as particular websites of banks offering cards and select the card which meets your requirements. Just fill-up an online application form and upload some basic documents. If you meet the eligibility criterion of the bank, your new Credit Card will arrive at your address.
As most Credit Cards have a pre-approved limit, so in case your expenses against the card exceed the approved limit, through purchase, fees or charges, the bank levies an over-limit fee against your account. This is more like a penalty for exceeding your available limit and is exorbitant in most cases; it would continue to be applied to your Credit Card account unless you bring the used amount below the approved threshold. Not only would it cause financial loss to you but would also affect your credit score negatively. As such it becomes imperative for you to pay close attention to the available limit against your Credit Card and must avoid over-limit charges under all circumstances. Here are 6 tips you can follow to avoid such instances:
You must keep a close watch on the total limit available against your card. Usually, you should try to keep the credit utilisation ratio below 40% of the total limit, but if due to financial crunch, your usage goes beyond that, then you must make sure that you do not use that card for now and keep it aside. Start using it only after you have made at least four to five repayments.
When you are signing up for a Credit Card, make sure you opt out of the over the limit facility. This would rid you of the worries, once and for all. Over-limit charges would cause you more hassles rather than any transaction being declined due to the insufficient limit.
If you feel that your card usage limit is bordering on the edge,i.e., around 80%, then you should avoid opting for auto-debit transactions from the card for the time being. Most of the over-limit charges are for transactions which you don’t even remember about.
Make sure when you Sign Up for a Credit Card, you opt for regular balance alerts. This will keep you updated about any transaction being done on your card and keep a close eye on the available limit.
You must not fall into the minimum payment trap and try to settle the bill amount in full, within the interest-free period. If your financial situation does not allow you this liberty, it is better that you try and make as much payment as possible every month, to bring down the credit utilisation ratio.
You must keep a close eye on your monthly statements to check the available limit as well as identify any charges that do not belong to your account. It is imperative for you to exercise great caution while using your Credit Card and avoid going over the limit under any circumstances. Otherwise, it would cause severe financial loss as well as negatively impact your credit score.
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