Know The Risks of Using Credit Card And How To Avoid Them .

News About Credit cards In India

Credit card can be risky instrument for those who cannot control the urge of splurging money. While Credit Cards have become extremely important in not just carrying financial transactions, but building a strong credit history, they also can cause turmoil in your financial life if you are irresponsible in using it. Here are the major risks associated with using credit cards and tips on containing those risks.

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Overspending: Credit card can be risky instrument for those who cannot control the urge of splurging money. The easy availability of credit not only reduces the sting of making payment, it also stimulates their desire to buy or consume more. Their exciting reward points, discounts and cashback offers also entice many to do unnecessary expenditures. As a result, many end up in spending more than they can afford to repay.

How to avoid it: The only way to contain the risk of overspending is to maintain a strict financial discipline. Check your outstanding credit card amount regularly to keep a tab on your spends. If you are spending more than you should through your Credit Card regularly, you may consider keeping your credit card at home when going out and using other means like debit card, mobile wallet or cash.

Reduction of credit score: As credit card transactions are equivalent of taking loans, credit bureaus record late payments or defaults in your credit report and reduce your credit score accordingly. Another major factor that reduces your credit score is your higher credit utilisation ratio. This ratio is the proportion of your total outstanding credit card balances against your total available credit limits. As lenders consider a credit utilisation ratio of over 30–40% as a sign of credit hungriness, credit bureaus reduce your credit score on breaching this level.

How to avoid it: Ensure to pay your full bill amount due by the due date. Those who fail to remember bill due dates should set standing instructions in their bank account to enable automatic deduction. Those who frequently breach the 30–40% level should request their card issuers to increase their credit limits or apply for another credit card. However, never apply with multiple credit card issuers within a short span as that too is considered as a sign of credit hungriness. Instead visit credit card marketplaces to choose the best card available on your credit score, monthly income and other criterion.

Credit card fraud: Fraudsters usually initiate the credit card fraud by duplicating your card (skimming) at point of sale (POS) terminals or ATMs or by accessing your details through e-mails or over the phone. They may also resort to identity theft by using your personal details to avail a new card in your name.