Responsible Credit Card usage: A guide

With the rapidly changing lifestyle and increased penetration of literacy and banking facilities, the demand for Credit Cards is on the rise. Besides offering financial freedom and convenience, using Credit Cards can also be a rewarding experience. HDFC Bank Credit Cards provide a range of benefits!
It is also essential to know how to manage Credit Cards and be mindful of your Credit Card limits. If you are not able to manage your credit and repay your bills on time, it can negatively impact your credit score. Let us discuss important tips on managing your Credit Card limit efficiently.

How to spend responsibly

It is crucial to be mindful of your expenses. By spending responsibly, you can learn how to manage multiple Credit Cards and their limits judiciously. The following are some useful tips that can help you achieve this -

• Set a budget: Having a fixed monthly budget in mind is vital. Make a note of your monthly income and the expected expenses. Allocate a budget for the expenses you intend to make via your Credit Card. By setting a realistic budget and abiding by it, you can successfully avoid overspending your Credit Card.
• Track your expenses: To ensure abidance to your set budget, it is vital to track your expenses. If you make several transactions daily, you can always use an expense tracking application to help you record all your expenses and review them whenever needed.
• Plan your purchases: It is easy to fall for sales tactics and make impulse purchases. But, to achieve complete financial freedom, it is important to plan your purchases and execute them in an orderly manner. Impulse purchases can make you overspend your budget and credit limit.

How Credit Card spending impacts your credit score

Your credit score is an important score reflecting your financial prudency. A good credit score can help you get loans at better rates whereas having an inferior credit score can lead to rejections and higher interest rates. The following elements of your spending can impact your credit score - 

• Timely payments: Your payment history significantly affects your credit score. Making your repayments on time reflects better creditworthiness and can help improve your credit score.
  Always try to make your repayments by the due date. This will also help you avoid any additional charges associated with late payments.
• Utilisation of credit: Your Credit Card has a set limit of credit. The credit limit is the maximum amount you can avail as credit. The amount of credit you have used out of this limit helps calculate your credit utilisation rate.
  A high credit utilisation ratio for an extended period might negatively affect your credit score. If you feel the need for an increased credit limit, contact your bank. Based on your repayment history and relationship with the bank, you might be able to increase your credit limit!
• Credit history: Credit agencies always view a long and proven track record as a better testament of credibility. Credit scores are no different.
  A credit history spanning a longer duration gives credit rating agencies more data points to assess your creditworthiness, as making decisions on a few transactions might not reflect the actual picture.
  Hence, if you have a credit history over an extended period, you might get a better credit score than with a shorter credit history.

How to avoid debt traps

Even though credit has become an indispensable part of life, you mustn’t end up in a debt trap. A debt trap refers to a situation wherein you have accumulated a lot of credit and are now seeking more credit to make repayments of the existing loan amount. This can create a spiral of credit, and you can end up being stuck in a debt trap. 
The following tips can help you understand how to manage multiple credit cards: 

• Pay the repayment amount: You must repay your Credit Card expenses by the due date. The repayment amount is typically not the overall outstanding balance but a minimum amount you need to pay back to service your credit.
  It is advisable to pay more than the minimum amount the bank asks for. This will help you trim the amount of credit you currently owe and will make it easier to repay the total amount.
• Keep a contingency reserve: Emergencies can occur at any time. It is financially prudent to store some money as an emergency fund. This will help you finance unexpected occurrences without relying on more credit.
  By managing your total credit amount, you can potentially avoid facing a debt trap situation.
• Seek help from an advisor: If you feel that you are finding it difficult to manage your finances and credit, then it might be a good idea to seek professional help. Financial advisors can help you navigate your credit journey. By seeking professional advice, you can potentially make the right decisions and avoid a debt trap while also building a good credit score!

By managing your expenses and credit well, you can work on your credit score and avoid extreme credit situations. Always try to make your repayments on time and borrow what you need within your existing credit limit. You can even get your credit limit increased basis your repayment history. Seeking professional guidance and advice might be an excellent way to manage your credit and finances for a more safeguarded approach.

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