Signs of Credit Card Overuse

Credit Card overuse can negatively affect your creditworthiness. It may lower your credit score as well as your credit limit. Overusing a credit card may lead to unnecessary shopping and cyclic debt every month. If you are salaried, you may consume the salary by just repaying the credit card debt and then again shopping the entire month on credit. Doing so can negatively impact your financial health and spending habits.

Apart from these side-effects, credit cards offer many benefits to the customers such as interest-free credit period, reward points, and cashless payments. In this post, we will discuss the concept of a credit card, signs of overuse of credit cards, and frequently asked questions.

Basic Concept of a Credit Card

Here are more details:

• A credit card is a special type of advance that allows you to shop without having money in your pocket or account.
• This plastic card allows you to buy goods on credit and repay the card issuer after a period that generally ranges from 1 day to 20 months.
• The issuer levies a huge interest on the unpaid amount after a month along with the fixed charges every month.
• To avoid such charges and interest, you can simply pay the dues in full within 20 to 50 days of purchase, depending upon the credit cycle of your card and date of purchase.

Warnings Signals That Indicate Overuse of Credit Cards

Following are some of the signs that signify credit card overuse:

1. Irregular Payments: The credit card companies generate bills on a monthly basis and a minimum amount due is also communicated to the holder through an electronic and physical statement. If you are not paying the credit card company on a regular monthly basis, you are perhaps not using the card wisely. You need to cut down on the extra shopping to limit the bill so that you can pay the company on time. Irregular payments do not only attract penalties but also lead to negatively affecting your CIBIL score negatively.
2. Rejecting Credit Card Enhancements: After some time, taking into consideration the repayment history of the cardholder, the credit card companies generally offer an enhancement in the limit of the credit card. Generally, the customers try not to avail of this enhancement offer due to the concerns about over usage. But this enhancement in limit allows the holder to have a better financial position in case of monetary emergency and festivals.

   This may also help the holder to cut CUR (Credit Utilization Ratio) as the limit is enhanced concerning spending which may remain constant (if used wisely). Not only this but the credit score of the holder is also better with a limit increase.

3. Credit Utilization Ratio (CUR): It is the ratio of your spending to the overall credit limit of the card. A CUR of less than 35% is treated as ideal, however, a CUR over this benchmark may lead to a decrease in your credit score.
4. Not using Reward Points: Credit Card companies generally offer reward points for every rupee spent through the card. The ratio of reward points to spend may vary with the nature of the transaction, for example, the company may offer double reward points for shopping for diamonds from a jeweler.

   These reward points can either be redeemed through special avenues set by the company (such as shopping in specified stores, fuel, gift vouchers, etc) or can be adjusted in the credit card bill. These reward points have a certain expiry and need to be checked regularly so that they can be redeemed/ en-cashed well in time to avoid loss.

5. Frequent Balance Transfers: The facility of balance transfer allows the customers to pay the credit card dues of a company through another credit card. Taking into consideration the fact that this is not a permanent solution and attracts a heavy fee, this practice should be avoided.
6. Paying Only the Minimum Due Amount: After generation of the credit card bill for the month, the company asks the holder to either settle the bill in full without any charges or pay just the minimum amount due, and the rest of the amount can be paid in subsequent months with interest. In this process, the company generally charges a heavy rate of interest which may go up to 30% p.a. Not only a heavy interest rate, paying just the minimum due amount can lead to worsening your credit report
7. Cash Withdrawals: If you are withdrawing cash from the credit card, it is important to know that you are paying charges to the company as much as 3% of the transaction amount. Not only this, the company levies a hefty rate of interest of up to 50% on the cash withdrawals made in the credit card, and that too from the very first day of the transaction.

   No interest-free period is offered in cash withdrawals from credit cards. This facility should be available only in unavoidable circumstances and even then, the dues should be repaid as early as possible since paying interest of up to 50% per annum is not a wise decision.

Frequently Asked Questions about Credit Card Overuse

Here are the FAQs: