How to use your credit card effectively, like a PRO

For a long time, credit cards were looked upon with some degree of suspicion in India – “Do you really need one?”, “Are you trying to show off?”, “Credit cards are a debt trap” and so on. However, the past few years have seen an uptick in credit card usage. Used wisely, credit cards can be an excellent money and spend management tool. Here are some ways to use your credit card effectively, like a PRO 😎

1. Choose a credit card to suit your usage

There are several types of credit cards being offered by banks, depending on your income and the benefits on offer. There is no “one size fits all” theory here – you may want a cashback on all your spends, others may prefer a credit card affiliated to a store, an airline or even for fuel, depending on their spends and lifestyle.

Several credit cards have attractive offers, bonus points, memberships etc on sign-up itself. Check the terms and spend eligibility for such benefits carefully along with the credit card interest rate, joining + annual fees and so on.

Check the “bang for the buck” – how many points do you get for each rupee of spend – while most classic cards begin with 1 point for every Rs 100 of spend, the higher end cards offer a point for even Rs 30-40 of spend, which can impact how quickly you accumulate your points.

Don’t be in a hurry to accept the credit card being offered when opening a bank/salary account – there’s a high chance the bank will offer a card they’re keen to push – which may be unsuitable for you. Take your time and choose the right credit card for yourself.

2. Always look out for opportunities to maximise rewards and bonuses

Credit card issuers, as well as ecommerce and offline players are literally falling over themselves with daily mails, offering vouchers, movie tickets, discounts, cashback and other rewards for certain types of purchases or made on a particular site, or during sale days, or even for your utility bill payments.

Many card issuers offer bonus points if you avail of a supplementary card for your spouse/other family member. Maximise the value you get from your credit card rewards and benefits.

Always check the terms and conditions for such offers – what minimum spend must be made, what is the maximum cashback, when will it be credited, and so on.

3. Track your credit card spends and credit limit

The flip side – it is very easy to splurge on your credit card during such sale/offer days and then lose sight of your overall spends leading to a huge bill or worse, the card being declined because you didn’t check the available credit limit. This in turn impacts your credit score.

Using an app like Walnut not only helps you track your credit card spends closely, but also stay within your credit limit.

4. Negotiate, negotiate, negotiate

That’s right – banks are more than willing to listen to you than they ever were before. You can negotiate a lower interest rate or balance transfer rate, get them to change the billing cycle, waive off joining/annual fees or other charges at times as an exception.

This works best if you are a responsible credit card user with a good track record and credit score. If you’re a habitual offender, tough luck.

5. Use the credit card billing cycle to your advantage

Credit card billing cycle usually begins from when you were first issued the card, and though you can request for a change, most banks tend to stick to the original cycle. This is on a monthly basis and you have between 20-25 days to pay the bill.

Planning your spends at the start of the billing cycle can get you a free credit period of 50-55 days. You don’t have to remember this either – just set the credit card billing cycle in Walnut.

This is practical only if you don’t have any existing outstanding amount on the card, otherwise the interest clock is already ticking.

6. One credit card is good, two are even better

If you’re comfortable managing one credit card, getting another can be a good idea. Not only do you get to avail of more and different benefits, you also get to spread your spends evenly and across categories and value instead of using just that single credit card for all your purchases.

Further, two credit cards with different billing cycles – ideally in different halves of the month – lets you optimise your spending pattern and free credit period. These can also come in handy during an emergency, with a greater combined credit limit.

Having too many credit cards can impact your credit score – so always keep an eye on your spends and bill payments.

7. Got multiple credit cards? Use them occasionally to avoid closure

It is possible you have several credit cards and prefer to use just one or two all the time. Nothing wrong with that, but if you don’t use a credit card for several months (usually 6+ months), the card issuer may temporarily block it (to reduce chances of fraud), lower the credit limit or even withdraw it altogether due to prolonged non-usage.

Card issuers incur costs on issuing and maintaining your credit card, so it is only fair they would expect you to use it 😉

Use your credit card(s) at least once a quarter – the amount of spend doesn’t matter – it can even be a bill payment.

8. Pay your credit card bills on time and do not revolve credit

Paying off the entire balance every month, and on time, is the best way to use a credit card. The moment you revolve credit, you are hit with extremely high interest charges. The annual percentage rate (APR) on credit cards is so high that it is quoted on a monthly basis.

A high outstanding balance or late payment can affect your credit score, besides incurring other charges. If you’re using Walnut, you get timely bill reminders and you can even pay your Visa credit card bills from the app.

If it is an emergency and you’re short of funds to make the payment, you can look at options like a balance transfer or converting credit card purchases to EMI to lower your outstanding balance till you can pay it off.

9. Closing a credit card? Be aware of the impact on your credit score

Often, if you have multiple cards, a bad experience with one card issuer or if you have no use for an extra card anymore may cause you to return the card. Be aware that this can cause a change in your credit utilisation ratio and consequently, impact your credit score.

Close a credit card only if absolutely necessary or if your card issuer no longer meets your requirements. If you’re paying annual fees, close it towards the end of the period.

Try and avoid closing your oldest card, which would be a significant part of your credit history.

How do you maximise your credit card usage? Share your tips and tricks in the comments.