Things you should know before Swiping a Credit Card

Credit cards offer a convenient way to make purchases and manage expenses, but they also come with responsibilities and potential pitfalls. Before swiping your credit card, it’s essential to understand how they work, the benefits they offer, and the risks involved. Here’s a comprehensive guide to help you make informed decisions and use your credit card wisely.

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Understanding Interest Rates

One of the most crucial aspects to understand about credit cards is the interest rate, often referred to as the Annual Percentage Rate (APR). The APR is the cost of borrowing money on your credit card expressed as a yearly interest rate. If you carry a balance from month to month, you’ll be charged interest on that amount.

Interest rates can vary widely depending on your credit score and the type of card you have. It’s important to know your card’s APR and understand how it affects the overall cost of your purchases if you do not pay your balance in full each month.

Read more: 5 ways to make the most of your credit card

The Importance of Credit Scores

Your credit score plays a significant role in determining your eligibility for a credit card and the terms you’ll receive. A higher credit score can help you qualify for cards with better benefits and lower interest rates. Before applying for a credit card, check your credit score and review your credit report for any inaccuracies. Maintaining a good credit score by making timely payments and keeping your credit utilisation low is crucial for financial health.

Credit Card Fees

Credit cards can come with various fees, including annual fees, late payment fees, balance transfer fees, and foreign transaction fees. Understanding these fees can help you choose the right card and avoid unnecessary costs. For instance, if you travel frequently, look for a card with no foreign transaction fees. If you plan to transfer a balance from another card, find one with a low or 0% introductory balance transfer rate and minimal fees.

Reward Programs

Many credit cards offer reward programs, such as cashback, points, or miles, which can be redeemed for travel, merchandise, or statement credits. While these rewards can be attractive, it’s important to understand the earning rates, redemption options, and any limitations or expiration dates associated with the rewards. Choose a card with a rewards program that aligns with your spending habits and financial goals to maximise the benefits.

Read more: Features and benefits of Axis Bank Credit Cards

Building and Maintaining Credit

Using a credit card responsibly can help build and maintain your credit score. This involves making timely payments, keeping your balance low relative to your credit limit, and not opening too many new accounts at once. On the other hand, missing payments or maxing out your card can negatively impact your credit score. Set up automatic payments or reminders to ensure you pay your bill on time, and regularly monitor your credit report for any discrepancies.

Balance Transfers and Cash Advances

Balance transfers and cash advances are two features of credit cards that can come with high fees and interest rates. A balance transfer involves moving debt from one credit card to another, often to take advantage of a lower interest rate. However, balance transfer fees can add up, and the lower rate is usually temporary. Cash advances allow you to withdraw cash using your credit card, but they often come with high fees and interest rates that start accruing immediately. Use these features sparingly and only if you fully understand the associated costs.

Read more: How to avoid interest charges on a credit card?

FAQs

Q: How can I avoid paying interest on my credit card?

A: To avoid paying interest, pay your balance in full by the due date each month. This allows you to take advantage of the grace period and avoid interest charges.

Q: What should I do if I can’t make my credit card payment on time?

A: If you can’t make a payment on time, contact your credit card issuer immediately. They may offer options such as extending the due date, setting up a payment plan, or waiving late fees.

Q: Can using a credit card improve my credit score?

A: Yes, using a credit card responsibly can improve your credit score. Make timely payments, keep your balance low, and avoid opening too many new accounts to build a positive credit history.

Q: What are some common credit card fees to be aware of?

A: Common credit card fees include annual fees, late payment fees, balance transfer fees, cash advance fees, and foreign transaction fees. Understanding these fees can help you choose the right card and manage costs.

In conclusion, understanding the intricacies of credit card use is crucial for making informed financial decisions. By familiarising yourself with interest rates, fees, reward programs, and responsible spending habits, you can maximise the benefits of using a credit card while minimising the risks. Taking these steps will help you maintain good credit and enjoy the convenience and rewards that credit cards offer.