First-Time Credit Card Users: Points to Remember

As a first-time credit card user, you need to keep certain points in mind. Apart from the convenience factor, there is a need to gain proper education on credit card usage and build credit as well as avoid costly mistakes. 

Improve credit score with effective usage: A credit card is an effective way to improve your credit and enhance credit scores by demonstrating how you manage credit on a regular basis. In order to raise your credit score, you can use your credit cards to make timely bill payments. Remember to use only a small portion of the available credit on the card.

Ideally, use your credit card at least once a month to develop credit. While credit is built even if you don’t use your card, doing at least one transaction a month can effectively speed up the process. 

However, leaving a balance on a credit card will not improve the credit score. Instead, the remaining amount invites interest from the bank or financial institution. In case there is a high balance on the credit card, your credit score will also be lowered.

Use a credit card to meet emergency expenses: It’s fine to use a credit card in an emergency situation provided you have the cash to pay off the balance before interest starts accruing. 

If you do not make a timely payment of the bill later, interest will continue to pile up, which could go on for months or years. This is the easiest way to fall into a debt trap. 

Keep your credit card safe to yourself:  Be alert always and don’t let your credit card out of your sight, especially while swiping it at the point of sale (PoS). Always ensure that the store, restaurant, or petrol pump swipes the credit card in your presence. 

Also, keep changing the PIN at least every six months. Check all SMS alerts from the bank about your credit card transactions. All payments must be authorised by you. Keep a tab on your bank statements from time to time. 

Ensure timely bill payments: At the very least, ensure you religiously pay the credit card bill on or before its due date every month. One of the primary factors related to credit score is the credit utilisation ratio. It is the amount that a credit card holder owes as a percentage of their credit limit. For instance, if you have a Rs 25,000 credit limit and your balance is Rs 10,000, your utilisation is 40%. Generally, the lower your utilisation, the better. As a thumb rule, any utilisation above 30% could have a dramatic effect on credit scores.