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Before you start your festive shopping, check your credit score.
All credit card issuers offer the option to pay a minimum amount, usually a percentage of the total balance. (Representative image)
By Bhushan Padkil
Festivals today have become synonymous with spending. Whether indulging in retail therapy for yourself, splurging on gifts for your loved ones, or decorating your house, the list can be endless. If you are worried about last-minute expenses, a credit card is a good option. However, before you start swiping your credit card this festive season, there are some precautions you should follow.
Keep in mind that if credit card dues are not repaid on time, it can impact your CIBIL score adversely, which is not desirable.
According to the latest TransUnion CIBIL’s Credit Market Indicator (CMI), as of June 2024, the delinquencies for credit cards increased to 1.8%, from 1.6% in the same period last year. This shows that credit card holders are defaulting on their dues, meaning they are not paying their outstanding balance in time.
Various factors may lead a borrower to default on their credit card payments. However, adopting sound credit practices can promote more disciplined spending habits related to credit card use. One essential practice is to regularly monitor one’s credit score and report.
According to a recent CIBIL study titled “Empowering Financial Freedom: The Rise of Credit Self-Monitoring in India,” the number of consumers tracking their credit profiles surged by 51% as of March 2024 compared to the previous year.
Furthermore, 46% of those who engaged in self-monitoring saw improvements in their scores, in contrast to 41% of those who did not monitor their scores.
What is a credit card default?
A credit card default occurs when you delay the payment of your outstanding balance, even by a single day. This involves an interest rate charge calculated for each day of delay, which varies from bank to bank. There may also be a penalty charge involved. All this could add up to a significant amount if you are not careful in managing your credit card dues.
How to maintain a healthy credit profile and score using credit cards
Prudent use of credit cards and timely management of credit card dues will ensure a healthy score and credit profile.
Here are some ways to achieve this:
Time your credit card purchases
Most credit card issuers offer 15 days after the statement date to pay the outstanding amount. This means you get about 45 days from the beginning of the credit card cycle to pay off your dues. Plan and time your purchases at the beginning of the cycle to give yourself more time to arrange the required funds and pay off the amount in full.
(2) Pay off credit card dues in full
The easiest way to ensure that your score is not impacted is to pay off your credit card outstanding amount in full. Banks don’t charge any interest for using credit cards, provided you pay off the balance in full. Most stores, too, don’t charge additional fees for using credit cards, though some online platforms may charge a convenience fee for the online payment mode, not for using a credit card.
(3) Convert the balance into EMI
If you cannot pay your credit card balance in full, convert the balance into EMIs and repay it regularly over a fixed period. This could be anywhere from three to 24 months. While you will have to pay an interest rate and processing charges, it is still lower than incurring the penalty plus interest cost on unpaid dues. This will also help you maintain your score., Check the interest rates and processing fees before you opt for this.
(4) Paying the minimum amount due
All credit card issuers offer the option to pay a minimum amount, usually a percentage of the total balance. If you choose to pay this amount, the remaining amount is carried forward to the next billing cycle and is added to the amount you may accrue in the next billing cycle. The advantage of this option is that you can avoid being reported as a delinquent customer. However, given the high charges, this option should be used as a last resort.
Some key dos and don’ts before you start your festive shopping
- Check your Score – Before you start your festive shopping, check your credit score. Knowing that your score is high, will prompt you to safeguard it by not overspending. Maintaining a high score is always prudent as it opens up the doors for likely faster and easier approvals or potentially better terms and conditions when you apply for a big-ticket loan in the future.
- Plan your budget – Before you start your festival shopping, make a list of everything you want to purchase, including gifts for friends and family. This will give you an idea of how much it will cost you and whether you can afford it.
- Check for deals and discounts – Look for offers, cashback, reward points, etc., on your credit cards, both online and offline. Both credit card issuers and brands may have attractive offers during the festive season. Knowing these and utilizing them to the full will help you save while spending.
In conclusion, as the festive season approaches let’s make informed and responsible credit decisions. Remember, credit is not just about spending; it’s about leveraging opportunities wisely to build a secure financial future. Let this festive season be a testament to your financial prudence and foresight.
Celebrate, spend, but do so wisely. Here’s wishing you a joyous and financially secure festive season!
-The author is Senior Vice President and Head of Consumer Interactive (Direct To Consumer) India at TransUnion CIBIL. Views expressed are personal.
Disclaimer: The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Readers are advised to check with certified experts before making any investment decisions.
