A credit card works by allowing you to make purchases ‘on credit’, i.e. the bank pays the immediate cost of purchase with the agreement that you will pay it back later. This implies that there are minimum eligibility criteria for you to qualify to get a credit card.
These conditions usually entail that you are 21 or above in age, with a regular source of income, and above all else, have a decent credit score. A credit score is essentially a grade-card of how financially responsible you have been over time — if you pay the loan amount on time, or if you have a good reputation with banks and businesses etc.
Also known as a CIBIL score, it is a way for the financial institution offering you credit to check if you are going to be able to pay them back.
Advantages of credit card
There are numerous advantages to possessing a credit card. They are convenient and give you a host of rewards, bonuses and one-time boosts. Above all else, however, credit cards offer security against theft, money fraud or merchant disputes.
Unlike traditional debit cards which deduct the money immediately, you can notify the bank about a fraudulent transaction, and it gets cancelled from your account. They also help mediate merchant disputes, and give insurances and guarantees over your finances.
With a credit card, you don’t have to worry about your account balance all month, and only need to concentrate on your credit card bill. This consolidation of finance helps in the long term handling of your personal expenses. However, there are some very important factors regarding rbl credit card payments that you need to keep in mind to avoid debt, and increase your credit score.
Rule Number 1: Pay your Bills On Time
Every credit card has a billing cycle. Whenever you are doing your accounts, you should keep a note of the date when your bill is generated. It is always recommended that you pay your bills as soon as they are generated, but make sure you pay them by the due date at least. All credit card payment bills have a due date 20-25 days after the bill generation.
If you fail to pay your bills on time, credit companies usually levy interest on the amount due. This means you have to pay a higher amount than what you had spent. Also, if you fail to make your credit card payments on time repeatedly, it is going to build up a high level of debt from interests and adversely affect your credit score.
Rule Number 2: Pay the whole amount
It is always recommended that you pay your credit card bill in full. An advantage of credit cards is that if you have exceeded your expenditure for a month, or have some unprecedented expenditure during a certain month, you can pay the minimum credit card bill amount, and pay the residual amount at a later date (usually with an interest).
This provision can be used up until you cross your credit card limit, which is the highest expenditure you can make on the credit card, but it should only be used as a last resort.If you keep spending more money on credit than you can pay back, you will build up a pile of debt that can adversely affect your credit score.
Rule Number 3: Credit Utilisation
Even if you earn as much money as your credit limit, it is always recommended that you don’t max up your credit card. That means, don’t use up all your credit limit at once even if you can pay it back, because it affects your credit score. The trick new credit card users can apply is to spend around 35% of the credit limit each month. This means a basic level of transaction is done on your card, but you are not using it to the brim to make ends meet.
Try to use debit payments if you go beyond 50% of your credit limit in a month. This practice at the beginning can actually come in handy later. If you have a good credit score by making payments on time and not using up your credit to the maximum limit, you can apply to increase the credit card limit with your bank.
One of the major advantages of credit cards is that you can make big purchases with it with relative safety, because merchants are forced into compliance and the bank intervenes in case of disputes. If you manage to keep paying your credit card bills on time and maintain a good credit score, you can have a large enough limit to be able to make big purchases with this additional safety guarantee.