A Guideline on How to Use Credit Cards

8 min read • Published 20 March 2023
Written by Anshul Gupta

While credit cards have become a preferred payment mode in today’s world, many people are not aware of how to effectively deal with it. With a credit card, you can effectively build up your credit score and create a better budget for monthly expenses. But, reckless overspending may lead you to a deadly debt trap which can negatively impact your credit profile. 

Read this guide to know about how to use credit cards effectively. 

Best Way of Dealing with Credit Cards 

Discussed below are some of the best ways to use a credit card:

  • Choose a Credit Card According to Your Needs

Before you apply for a credit card, you must sit down and understand your financial requirements. Conduct research on the multiple credit card options available in the market. Take into account their cashback, reward structure, co-branded deals, benefits, annual maintenance charges and joining fees and then select the option most attuned to your financial needs. 

For example, if you have to spend a lot on daily needs, choose credit cards that have tie-ups with supermarkets and market chains. 

  • Set a Credit Limit for Yourself 

While credit cards provide you with access to a convenient line of credit, they can also lead to a habit of overspending. Lenders will be more than willing to offer a higher credit limit, as much as 10 times one’s monthly income, to people who have high credit scores. 

To avoid making reckless purchases and piling up credit card debt, set a credit limit for yourself. A suggestion would be to use less than 25% of the available credit limit as it helps in repaying the debt easily and keeps your credit utilisation low. 

  • Pay the Credit Card Bills within the Due Date

Make the repayment of your credit card bills a top priority because delayed payments will incur heavy penalties, which will further increase your debt. While lenders provide the option of converting high-end purchases into flexible EMIs, this arrangement will attract high processing fees, interest rates and taxes. 

If you roll over the credit card bill by paying only the minimum balance, you would have to pay interest on interest, increasing the overall debt amount. To avoid such situations, pay all your credit card bills within the due date. 

  • Make Optimum Usage of Co-Branded Offers

Nowadays, every reputable credit card issuer has partnerships with popular restaurants, airlines, e-commerce platforms, hospitality chains and other corporations. Lenders also offer attractive benefits, privileges and cashback to attract customers, especially online shoppers. 

Availing these benefits will allow a cardholder to cut down on their expenses and receive real value back into their account while shopping or dining. Do not forget to check the minimum spending amounts monthly, quarterly and annually. 

  • Separate the Expenses of Different Credit Cards

You can consider setting up different credit cards tailored to different financial needs. In other words, you can use a credit card offering good deals on grocery shopping for buying groceries only. A credit card offering good deals on shopping via e-commerce websites can be used exclusively for online purchases.

An important benefit of having separate credit cards for separate expenses is you don’t have to pay a large amount on a particular day. This will allow you to keep your credit utilisation low.

  • Create a Monthly Budget 

Some people use their credit cards for monthly expenses and invest the money lying in bank accounts in low-risk and short-term securities. Using credit cards for monthly expenses helps in creating better monthly budgets because every cardholder has access to digital systems through which they can track, navigate and review the recorded costs. 

But, this process requires precision and availability of adequate funds in one’s bank account. This is not an ideal option for someone who lives from one paycheck to another. 

Common Credit Card Problems and Solutions 

Let us discuss some of the common credit card problems you might face and how to deal with them: 

  • Your Credit Card Is Declined

Many of us have experienced this problem and it is quite frustrating. But the solution is simple. Credit card transactions may get declined due to card expiry, pending KYC, blocking of a card or technical issues. To avoid such situations, always check your credit limit, update your KYC, be aware of the expiry date and keep track of your transaction history. 

  • Missing the Payment Due Date

Failure to pay the outstanding credit card amount within the due date may happen because of several reasons but it leads to a massive outstanding amount. So, ensure to pay your credit card bills on time. Also, have a proper repayment plan before buying expensive products and set up auto-payments. 

  • High Annual Fees

Often people hold multiple credit cards and the annual fees associated with all of them tend to be quite high. People tend to get unpleasantly surprised when they see the annual fee on their credit card statement. 

So, it is important to check the terms and conditions minutely while applying for credit cards. Another point to note is that it is much better to hold 2 – 3 credit cards based on financial requirements because of easier management. 

  • Damage to the Physical Credit Card

When people hold credit cards for a long time frame, the card is subject to wear and tear. As a result, there might be times when one is unable to swipe the credit card while purchasing items. If you face such a situation, then don’t hesitate to apply for a duplicate credit card. 

The reapplication process is quite simple as you can apply through internet banking. Usually, the duplicate version arrives within 7 working days

  • Credit Cards Not Functioning Outside of India 

Often, international transactions are disabled on credit cards by default. In case you wish to make purchases with your credit card when you travel to a foreign locale, make sure the card is enabled for international transactions. Also, make sure your credit card has an EMV chip. Do not forget to check the applicable international transaction charges before you use your credit card in a foreign country. 

How Can You Use a Credit Card to Build Your Credit Score? 

Did you know that you could build your credit score with your credit card? It is a more advantageous option than loans as there are no interest rates, EMIs or other associated costs for credit cards. If you are unable to apply for a regular credit card, consider applying for secured credit cards which are issued against cash deposits. 

The most effective way to use a credit card to build a credit score is to pay your credit card bills well within the stipulated time frame. An important suggestion would be not to exceed the credit limit every month and manage a good credit utilisation ratio. 

Things to Consider before you Avail a Credit Card 

Listed below are some of the most important things to consider before applying for a credit card: 

  • It is a good idea to avail a credit card only if you have a stable and consistent source of income. This is an essential point to consider because the absence of regular income may lead you to fall into a debt trap which will have an adverse effect on your credit profile. 
  • Reading the terms and conditions is of utmost importance as already mentioned above. Contact the lender in case you have queries. 
  • Know about all the extra expenses associated with a credit card, otherwise, you might feel exploited later. Generally, lenders do not explicitly mention interest rate charges, international transaction charges and cash withdrawal charges when potential cardholders apply for a card. 

Final Words

While paying with a credit card is easy and convenient, it can also lead to reckless purchases. Therefore, understanding your financial behaviour and then selecting a suitable credit card is important. Before you apply for a credit card, go through this guide which will provide you with an idea about how to effectively use credit cards. 

Frequently Asked Questions

How many credit cards should I have? 

The answer to this depends entirely on your financial requirements. While a card offering various reward points might be enough, you can also consider availing 2 – 3 credit cards for different types of financial requirements. 

What is the process for owning a credit card?

You need to get in touch with a credit card-issuing financial institution and ask for the application form. Fill in the required details and submit the form along with the necessary documents. The financial institution will send you a new credit card by mail after assessing your credit profile. 

What is the difference between a credit card and a debit card?

A credit card is almost like a short-term loan issued by the lender to enable the cardholder to make payments. Credit card spending gets accumulated into a single bill after the billing cycle comes to an end. On the other hand, a debit card is a card enabling the cardholder to pay or transfer money directly from their bank account.

What is the minimum salary criterion to be eligible to avail a credit card?

The eligibility criterion including the minimum salary requirement depends on the type of card you are applying for. It can also vary from one credit card issuer to another. Certain lenders have specified salary requirements of ₹70,000 and ₹75,000 per annum for ordinary credit cards. Others might ask for a salary requirement exceeding ₹1,00,000.

Was this helpful?

Anshul Gupta

IIT Roorkee Alumnus and CFA with experience of structuring debt products worth more than 15000Cr for institutional and retail investors.

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