Three credit card mistakes to avoid to maintain good CIBIL scores, and avoid too much interest

Three credit card mistakes to avoid to maintain good CIBIL scores, and avoid too much interest
Indians have been swiping their credit card more and transactions are growing consistently and are now above ₹1 trillion a month. This can be attributed to recovery in air travel, hospitality as well as increasing inflation making go for the ‘pay later’ option.

A recent RBI report says that credit card users spent three times more online than they did offline. On an average, a user spends ₹14,500 per credit card per month, while debit card spends stand at just ₹700 per card.

While a credit card has its advantages, it also has demerits that users choose to ignore or are not aware of.

Money Insider dives deep into the world-changing potential of financial awareness. It brings together the top young voices from the industry educating millions of Indians and shaping the financial habits of millennials, Gen Z and beyond.

One such influencer who helps one understand complex labour laws for employees is Mandeep Gill, co-founder of Labour Law Advisor.


Gill aims to simplify complex labour laws for the Indian workforce and help them build a better financial future. His YouTube channel has over 3 million subscribers.
According to Gill, here are three mistakes to avoid when using a credit card:

#1 Don’t use more than 30% of credit card limit
Let's say you spend ₹40,000 every month from your credit card and you pay the full amount before the due date. This is all good but if the total limit of your card is ₹50,000, then it means you're using around 80% of your total credit limit.

It makes you look credit hungry and will have a negative impact on your CIBIL score. Hence, a healthy credit utilization ratio is around 30% and if you want to use more, make sure to increase your credit card limit.

CIBIL score is a three digit number that ranges from 300 to 900, which summarizes your credit history, repayment report and spending data. The closer your score is to 900, the better your credit rating is.

The CIBIL score plays a critical role in the loan application process, not just limiting to banks but also credit card companies, mortgage lenders, auto lenders etc. The lending institutions analyze your creditworthiness from your CIBIL score before approving the loan request..

#2 Don’t withdraw cash
Withdrawing cash from an ATM with a credit card may look easy but prove very costly for you. This is because right from day 1, you will be charged around 2.5% - 3.5% interest per month, which is 40% interest per annum.

Note that you get about 50 days of interest free period to pay your credit card dues but that doesn't apply to cash withdrawal. Also, the credit card company will levy a late payment charge in case you fail to return the cash advance before the due date.

#3 Don’t make minimum payment
When you receive a credit card bill, you have two options -- one is to pay the entire amount and other is to pay the minimum amount, which is typically 5% of the total outstanding amount. And one might even get happy by seeing the minimum bill amount.

If one is short of money, they end up paying the minimum amount due. While this option will help you avoid late payment fees, this is where a lot of people make their biggest blunders.

This minimum amount will turn into 40% interest per annum and you won't even get the benefit of a 50 days interest free period.

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