Credit cards, if used properly, can be a great way to build one's CIBIL score, says Abhishek Agarwal.
Credit cards have become nearly omnipresent in our lives today. If you are out here reading this, it is quite possible that you already have a credit card or two or intend to take one shortly. Credit cards, as you may have often heard or read are made out to be rather villainous and the cautious among you may feel that you are better off without one as you are not keen to step into a whole new world of debt.
This, however, is a misconception or half information at best as far as credit cards are concerned. Just by managing your credit card debt you could end up with a high score of 750 and above.
Don't know how to go about it? Here's help at hand.
Spend in small amounts and pay in full
This is the cardinal rule when it comes to credit card repayment. Do not buy anything on your credit card that you think you will not be able to repay in a month's time or by the end of your billing cycle. Keep your credit card spend under control and pay the entire outstanding debt in full in month.
This is a sure shot way of ensuring that you never fall into the much talked about "minimum amount" cycle that in fact translates into a debt trap as you never manage to make a repayment on the principal amount and you are charged interest on the total outstanding.
Set up a direct debit for the payment of your credit card outstanding
In order to maintain a good CIBIL score, you need to pay all your outstanding debt on time. The best thing to do to ensure that you do not miss any payment is to set up a direct debit facility from your account. If your credit card is linked to your bank account, it's all the better as you then do not have to worry about due dates on your credit card payments each month.
Make sure you check your credit card statement
This is another common mistake that people often make. Since they already know what the outstanding amount on their credit card is, they skip reading through the statement. This is not advisable as your credit card statement contains vital information about your transactions done in the billing cycle, the total credit you are eligible for and how much you have already spent, your demographic details and the status of your reward points.
If you go through your credit card statement patiently, you will see that all the information is displayed quite prominently and it will tell you exactly where you stand as far as your credit card usage is concerned. Checking your credit card statement will make you feel in full control about your credit card spend and usage pattern and also help you regulate the same if necessary.
Be vigilant of frauds
Using a credit card is indeed mighty convenient, but more often than not people do not find it necessary to comply with the necessary measures to remain vigilant about fraud. If you are using your credit cards for online shopping, make sure you are using a site that has the proper checks and balances in place.
If anything seems amiss, do not go ahead with the transaction. Also do not fall for the trick of merchants who ask you to divulge details over the phone. Unless you are a 100 per cent sure about the nature of transaction, do not go through with it.
Keep an eye on rewards redemption
Credit card issuers today are far more in sync with the likes and dislikes of consumers these days, and offer different sets of rewards. Before you make an application for a credit card, make sure you have gone through all the offers and selected a card that seems best suited to you.
Once you start using the card, keep a track of the reward points and be in the know of the redemption process as each issuer has different set of rules with regards to redemption of reward points. Your credit card statement is the place to look for all this information. Once you know how many reward points you have accumulated you can redeem them according to your convenience and will.
Credit card management is all about maintaining basic financial discipline and ensuring that you keep a strict control over credit card spend. Just doing this can ensure that you are in total control of your credit card debt and can also use your card as a stepping stone towards building a good CIBIL score.
Photograph: Gabriel Rojas Hruska/Creative Commons
The author is Co-founder and Director Credit Vidya.
