The benefits of credit cards are innumerable. However, you should be a judicious user. Undisciplined use of credit cards can result in a negative CIBIL score, thereby affecting the borrowing potential for future. CIBIL score is an important metric that is used by financial institutions to check when they receive a credit request from individuals.
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Here are 5 tips to maintain credit card discipline:
Make timely and full payment of credit cards
The one thing that helps the the most is timely and full payment of credit card dues. The more you do this, the higher you become financially disciplined. Avoid late payments, because one late payment could hit the credit score too, experts opine.
Avoid taking cash from credit cards
One of the common mistakes committed by an individual is taking cash out of a credit card.
Debiting cash from a credit card can be costly as lenders charge more interest for it than they do it for making digital purchases, said Adhil Shetty, CEO, BankBazaar – a marketplace for financial products.
Spend in limits
There's no denying that any credit product can be a slippery slope. The lure of easy installments for much-coveted purchases can be too much to resist for consumerist borrowers.
Hence, Rajat Deshpande, Co-founder and CEO, FinBox asks consumers to assess their own needs and ability to service credit before binge-spending precariously close to being in financial trouble.
Keep the credit utilisation ratio under control
A high credit utilisation ratio indicates that you are a risky borrower.
Banks consider a credit utilisation ratio of around 30 percent of the total limit to be financially healthy. You could use more than one credit card to reduce the credit utilisation ratio as your spending would be distributed across multiple cards, Shetty advises.
Avoid making too many credit inquiries
Making multiple inquires for credit cards adversely impacts the CIBIL score. According to experts, one should only apply for a credit card when it is really necessary. Opening a new credit account also lowers the average credit age.
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