A Credit Card is sort of a pre-approved personal loan, using which a person can make certain purchases, borrow money against it or one can even get advance cash. It is one of the best options which a person have in financial cash crunches and in the case of certain emergencies where money is required. One of the advantages of using a credit card is that the interest payable is only on the amount used not on the maximum amount available. But it’s a fact that when there are some advantages of a thing there is another side too. This means along with the advantages there are some disadvantages too. Some of them are- Frequently swapping of a credit card can get you into a trap. This is because the interest rate charged on the credit Card is generally higher than any other loans. The interest rate charged for a credit card use varies from 24% to 36% per annum. So, using a credit card generally end up by paying lot more on the interest than the principal.
Having a credit card account and keeping it active is very important as your credit card uses are reported to the credit bureaus which is represented in your CIBIL Score. And we all know that to have a good CIBIL score is how much important. It decides your future credibility and represents your financial borrowing history along with its repayments. So, it is must to have a good credit score. Know here the question arises that how often should be your credit card to have a good credit score? The answer of this question is not certain regarding the uses but your repayments against your credit card certainly decides your CIBIL.
How often a Credit Card Should be used?
Credit Utilization Ratio
As advised by many financial advisors, it is good to use only 30% or below 30% of the total value of your credit card. This helps you to get a good credit score. By using only 30% the interest which you have to pay will also be low and hence it will be affordable and easy for you to pay it.
It is totally a misconception that one should carry some debt from month to month on their credit card. As this helps to build a good credit record. But in reality no such thing is required to do. Paying off the outstanding amount of your credit card timely is the most important thing required for a good credit score. Monthly payments keeps you debt free and tension free too.
Suppose you used your credit card this month and your monthly bill is of INR 7,000. And you pay only INR 4,000 which is more than the minimum required payable amount. So is that enough? The answer is definitely NO. After paying only 4 thousand you have to pay interest on the outstanding amount, which is generally 2% to 3%. The outstanding amount will keep on increasing as you can’t stop using your credit card. As a result your interest will keep on increasing and then it would be difficult for you to pay the whole amount. Hence it is best to pay the total outstanding amount on a monthly basis.
How often should Credit Card be used to keep it Active?
Although it is said to avoid using credit card then also it is must to use it, in terms to keep it active. To keep your card active it is suggested to use your credit card once in three month. This is important to do because it is only on your transactions that your card issuer will send your report to the reputed agencies to upgrade your CIBIL. But doing these transaction is difficult when you have many credit cards say 3 or 4. In this case rotate your cards month wise (quarterly). But always remember use your card after knowing your repayment capacity only.
Use only that much which is easy for you to repay. Try to pay your small monthly bills using your credit card and set a reminder for the payment in your mobile so that you can’t forget it.
Will your Credit Card Issuer warn you for the Inactivity?
This is not at all good thing that you should wait for a warning from your credit card issuer in terms of inactivity. Generally this doesn’t happen. None of the credit card company will inform you about how your transactions is reported to Equifax or any other credit reporting companies. In terms to maintain a good CIBIL you should check for your CIBIL report from these companies.
One should never wait for a reminder. The company may inform you for your inactivity after closing your credit card account. If you have too many credit cards and you are facing difficulty in keeping them active. Close some of them yourself before the company does.
Tips Which can help You to Avoid Common Credit Card Problems:
- Pay off your credit card bill every month.
- Use your card for needs, not for wants.
- Never skip a payment against your credit card.
- Use your credit card as a budgeting tool.
- Use a credit card which gives you reward points.
- Use only 30% of your total credit limit.
- Protect yourself from credit card frauds.
It is always important to have 1 or 2 credit cards. It helps you in your emergencies when you have no one to help you. But it is equally important to pay your credit card bills timely. This keeps you debt free and help you to get a good CIBIL. But don’t use it frequently. Use only that much amount which you can repay without any trouble.