Precautions while using Credit Cards

Over the last decade, there have been a lot of changes in the spending habits of the average Indian. Today, credit cards are a preferred way of making payments by the young generation. Credit cards are convenient, and widely accepted and offer benefits like cashback rewards, travel benefits, discounts at partner channels and fraud protection. At the same time, it is also equally important to be aware of how to use a credit card effectively to ensure that one gets the maximum benefits out of it.

Here are some tips to ensure that you make optimum use of your credit card.

The Do's

Track transactions 

It is imperative that you keep track of your transactions by going through the transaction alerts received by email or SMS. In case you find an unauthorized transaction, you need to report it immediately to the bank and get it reversed. Keeping track of transactions regularly will also ensure that you are aware of the current outstanding amount and you can control your spending.

Know the charges and fees 

Credit card charges include joining fees, annual fees, interest on the amount carried forward, late payment charges, cash advance fees, over-limit charges etc. It is important to read and understand all the charges applicable to your card before you start using it.

Keep updated on offers and rewards 

Banks tie up with various travel, e-commerce, entertainment companies etc. to offer very attractive cashback and discount offers. Always keep updated on the various deals on offer to take maximum advantage of your credit card.

Keep the credit utilization ratio low 

The credit utilization ratio is the amount of credit used to the credit limit. Experts have opined that you should spend only up to 30% of your credit limit to maintain a good credit score.

The Don'ts

Never miss a payment 

Generally, the interest rates and fees on credit cards are very high. Hence any delayed payment can lead to penal interest and late payment fees. Moreover, this would also affect your credit score. Hence the dues must be paid well before the due date.

Don't pay the minimum due 

The credit card offers you a revolving credit facility where you have the option of making a payment of 5% of the outstanding amount and carry forward the balance to the next month. However, there will be interest charges levied on the amount carried forward. Interest rates on credit cards are the highest among all loans and hence your outstanding will keep increasing month on month. So as far as possible, the total outstanding should be cleared on or before the due date. 

Don't withdraw cash

Cash advances on credit cards can be very expensive with high interest rates and cash withdrawal fees. Hence one should avoid cash withdrawals using credit cards.

In addition to the above, you also need to take certain precautions to prevent fraud on your credit card. Some of them are:

• Keep your card safe - That means storing it in a secure location and being careful not to lose it. In case you lose it, you need to report it to the bank immediately so that they can block it and ensure that the card is not misused.
• Use strong passwords and PINs - Ensure that the passwords and PINs are strong. They should not be easily guessed like your name or your date of birth. 
• Online shopping - Shop only at reputed websites that use secure payment gateways. You should also avoid making purchases on public Wi-fi networks as they are not secure and can be hacked. 
• Get your credit card token - RBI has recently asked all banks to create tokens for card details. That means that while paying at an e-commerce website, the customer will not punch in the 16-digit card number. Instead, the bank will issue a token that would link the card to the specific website. Hence sensitive details like card number, expiry date, and CVV would not be shared with the merchant and will be safe.

In conclusion, by keeping in mind the above dos and don'ts, one can enjoy the benefits of a credit card while keeping it safe and secure.

Disclaimer: This article provides general information existing at the time of preparation and we take no responsibility to update it with the subsequent changes in the law. The article is intended as a news update and Affluence Advisory neither assumes nor accepts any responsibility for any loss arising to any person acting or refraining from acting as a result of any material contained in this article. It is recommended that professional advice be taken based on specific facts and circumstances. This article does not substitute the need to refer to the original pronouncement