Most of us would have started using credit cards or have credit cards with us. Some of us have 4 or 5 or may be more. Banks also like to give us credit cards. But with credit cards comes financial responsibility. Till recently banks never used to share credit information with each other, now they have started sharing this information.
Come 2010 and India too would have a system in place where you would be able to see your credit score. What is this credit score and how does it help. Most banks would decide on how much credit to give you as well as the interest rate to charge you based on your credit score.
Making use of a credit card judiciously will help you improve your credit score. If you already have a couple of cards do not go in for more. Going in for more cards does not increase your credit score. Mounting up credit on your credit card is also harmful. Just paying the minimum amount means paying interest and other charges.
Remember taking credit on your card is one of the costliest credits given by a bank. Check out your credit card statement for the charges on opening balance. Now divide the charges by the opening balance and multiply by hundred. This is the interest rate you would be paying for raking up a credit. This rate is only the monthly rate. Now multiply this by twelve and surprised, that is the annual rate you pay. On a monthly basis the amount looks low. But would it not have been better to take a loan, the net effect would have been a higher saving.
Credit cards give you convenience, but they come at a cost. Taking a loan is a bit cumbersome, but its better to take those little pains and save. Always check the credit limit being given to you by the credit card company. The higher the limit the better your score; take care, even if you do not use your credit limit, your credit rating will not go down, so don’t pressure yourself to use the credit.
Now on reading this article doesn’t mean you rush to close your cards, do them slowly. Wait till the expiry date and then close the one’s you do not want. The longer you have a credit card and good payment history, the better your score. If you have multiple cards and yet want to keep them, then plan.
One way would be to increase the number of days you get credit. i.e. you use the card say one week from the start of the billing cycle. Since all cards have different billing dates. The other would be to use one card for a particular type of expense only. Also if you want to keep all your cards, ensure that you use them. Taking a card and not using it would prompt the bank to close your card, leading to reducing your credit score.
1 comment:
Dear Anthony,
First of all thanks for writing such a nice blog.
I would like to add one cooment on this-
The best feature of using a credit card is that i need not go to an ATM everytime, if i wish to purchase an item. Either on the internet or in the market. We can do it using our debit cards also, but many of the payment gateways only support "Credit Cards", not the debit card.
Regards,
Gaurav
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