Today, availing a credit card is not just about making payment or financing them in case of fund shortages. It is also about earning discounts, cashbacks, reward points and free vouchers on credit card transactions. Those with consistent repayment history can also avail instant loan against the sanctioned limit of their credit card.
Here, we will focus on how to maximize your benefits from your credit cards.
Choose credit card according to your spending habits- Most credit cards focus on specific customer categories by offering higher cash backs, discounts and reward points on specific transaction types. Hence, first analyze your spending pattern and then choose a card that generates maximum benefits on your card transactions. For example, a frequent flyer would benefit the most from travel credit cards as they offer air miles (redeemable against air tickets and hotels), air ticket vouchers, free lounge access and hotel vouchers against card spends. Similarly, fuel cards offer higher discounts, cashbacks and reward points on fuel transactions. Even accumulated reward points can be redeemed for free fuel. Hence, fuel cards would most benefit commuters who spend substantial sum on fueling transactions.
Use credit card for daily spends- As the reward points, cashbacks and discounts offered by credit cards can help reduce your cost of purchase or services, more frequent usage of credit cards would help you reap higher benefits. However, ensure to pay credit card bill by the due date as failing to do so would incur finance charges in the range of 18 to 48% p.a. Failing to pay the minimum amount due would additionally cost late payment fee, which can go up to Rs.1,000 per month. Hence, convert your big-ticket purchases into EMIs if it becomes difficult for you to repay your entire bill amount by the due date. The interest rate of such conversionsis significantly lower than finance charges.
Have multiple credit cards- Most credit cards generally cap the number of reward points that can be accrued during a billing cycle. Having multiple credit cards will allow you to divert your transactions to other credit cards if you reach the upper cap of your primary card. Multiple credit cards will also allow you to distribute your transactions across various cards on the basis of cash backs, reward points, discounts and other benefits. This would allow you to earn higher benefits on the same transactions. Additionally, multiple credit cards will also reduce your credit utilization ratio by increasing your total credit limit. This will help improving your credit score.
However, possessing multiple credit cards can also work against those having difficulties in remembering multiple due dates and bill amount. This issue can be solved by setting standing instructions on your bank accounts, which will ensure automatic repayment of your bill amounts. Also ensure that the monetary benefits from multiple credit cards are significantly higher than the total cost incurred in the form of annual charges.
Redeem your rewards points before their expiry-The reward points earned from most credit cards expire after a pre-stated period. For example, reward points accrued from Axis Bank and HDFC Bank credit cards expire after 2 years and 3 years respectively whereas those accrued from Citibank never expire. Hence, always ensure to track the rules regarding the reward points and redeem them before their expiry.
Check-out benefits of extended spends: While most credit cards cap the number of reward points within a billing cycle, there are some that encourage higher spends through additional benefits on spending beyond threshold spend amounts. These additional benefits can be in the form of bonus reward points in lifestyle or shopping cards or complimentary air tickets or vouchers in case of travel credit cards. These cards would especially suit those having higher card spends.
Compare the end use of reward points: While most credit cards allow the redemption of reward points for vouchers, lifestyle products, electrical appliances, accessories, air tickets, hotels, etc. from their partner merchants, others allow adjustment of reward points against annual fee or credit card bills. Similarly, co-branded credit cards usually restrict the reward point redemption to their partner co-brands. Hence, opt for a credit card whose reward point redemption program suits your transaction pattern and tastes.
Increase your credit limit for higher credit access- Apart from being beneficial for your credit score, increased credit limit also helps in enhancing your credit access. Most credit card issuers offer loan against credit card to existing cardholders having excelling repayment track record. As such loans usually cannot exceed the credit limit, have a higher credit limit will automatically increase your eligibility for higher loan amount. As loan against credit cards are usually disbursed within few hours of making the loan application, having a higher credit limit can come handy during financial exigencies.
-By Sahil Arora – Head, Payment Products, Paisabazaar.com
