Credit card utilization ratio is the credit card usage ratio with its total limit. This ratio should be kept below 30%. For example, if your credit card limit is ₹ 10 lakh, try not to spend more than ₹ 3 lakh on the card.
There is a different craze about credit cards among the youth these days. Many people also take credit cards to take advantage of attractive offers on online shopping. Some people take credit cards to fulfill their financial needs. If you are also going to take a credit card, then keep some things in mind. Let’s know what these are.
Credit limit
Every credit card has a set limit. Make sure that you do not spend more than the limit. For example, if your credit card limit is ₹ 5 lakh, then your outstanding bills have to be kept within this limit.
Credit card utilization ratio
Credit card utilization ratio is the credit card usage ratio with its total limit. This ratio should be kept below 30%. For example, if your credit card limit is ₹10 lakh, try not to spend more than ₹3 lakh on the card.
Credit Score
When you pay your bills on time, your credit score increases, which leads to a higher credit limit for your card. For example, if your credit card limit is ₹5 lakh and you keep paying bills on time, chances are your credit limit will increase to ₹7.5 lakh.
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Interest Free Period
When you buy something with your credit card, you get an interest-free period of 45 days. But once this period is over, interest starts accruing.
Minimum Due vs Total Due
When you receive a credit card bill payment, you have two options: pay the minimum due or pay the entire bill. It is always advisable to settle the outstanding amount instead of paying the minimum due. When you pay the minimum due, interest is charged on it.
Cash withdrawal
However, you can withdraw cash from a credit card. But this is something that should be avoided. The interest charged on credit card cash withdrawals is usually exorbitant, so it does not make sense.
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