Using a credit card wisely can help you maximize benefits, build a strong credit history, and avoid debt traps. However, misuse can lead to financial stress, penalties, and a lower credit score. Below are the best practices and common mistakes to avoid.
Do’s (Best Practices for Credit Card Usage)
Following these best practices will help you make the most out of your credit card while staying financially secure:
- Pay Your Bills on Time → Always clear your credit card bill before the due date to avoid late fees, high-interest charges, and negative impacts on your CIBIL score. Set up auto-pay or reminders to ensure you never miss a payment.
- Keep Credit Utilization Below 30% → Your credit utilization ratio (the percentage of your credit limit used) plays a significant role in your CIBIL score. Ideally, you should keep your usage below 30% to maintain a healthy credit profile.
- Review Your Statements Monthly → Always check your credit card statement for unauthorized transactions, errors, or fraudulent charges. If you notice anything unusual, report it to your bank immediately.
- Use Rewards & Cashback Wisely → Many credit cards offer cashback, reward points, and discounts. Make sure to redeem your points before they expire and use offers on dining, travel, and shopping to save money.
- Use Credit Cards for Planned, Essential Purchases → Use your credit card for necessary expenses like groceries, bill payments, or planned travel. If making a big purchase, consider converting it into EMIs to avoid financial strain.
- Report Lost or Stolen Cards Immediately → If you lose your credit card or suspect fraud, call the bank’s customer service and block the card immediately to prevent unauthorized transactions. Most banks also provide the option to temporarily freeze your card via mobile banking apps.
Tip: If you struggle with timely payments, set up an auto-debit for the full bill amount to avoid penalties and maintain a good credit score.
Don’ts (Mistakes to Avoid with Credit Cards)
To avoid financial trouble, avoid these common mistakes:
- Don’t Miss Payments → Missing a credit card payment results in high interest charges, late fees, and a negative impact on your CIBIL score. Even if you can’t pay the full amount, pay at least the minimum due to avoid defaulting.
- Don’t Spend More Than You Can Afford → Just because you have a high credit limit doesn’t mean you should spend it all. Overspending can lead to debt traps, financial stress, and difficulty in repayment.
- Don’t Withdraw Cash Using Credit Cards → While credit cards allow cash withdrawals from ATMs, this comes with high withdrawal fees and interest charges starting immediately (no interest-free period). Instead, use a debit card for cash withdrawals.
- Don’t Use Too Many Credit Cards → Having multiple credit cards can increase your credit limit, but if you can’t manage payments efficiently, it leads to missed due dates, higher debt, and a lower credit score.
- Don’t Share Your Card Details → Never share your card number, CVV, OTP, or PIN with anyone. Avoid saving card details on unknown websites to prevent online fraud.
- Don’t Apply for Too Many Credit Cards at Once → Each time you apply for a credit card, banks perform a hard inquiry on your credit report, which can temporarily lower your credit score. Applying for multiple cards in a short period can make you look credit-hungry to lenders.
Tip: If you need a second credit card, choose one that complements your spending habits, such as travel rewards, cashback, or fuel benefits.
Final Thoughts: Should You Get a Credit Card?
- Yes, if:
You can pay bills on time
You want rewards & benefits
You want to build a credit history - No, if:
You have a habit of overspending
You cannot manage repayments
You are already in financial debt