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Pay credit card dues on time!

Abitha Deepak, BankBazaar.com

February 26, 2009

So you have one of those gold credit cards that offer you a credit limit of Rs 1 lakh (Rs 100,000)? Does that mean you can keep drawing cash or making purchases till the maximum credit limit you can avail? Even when you pay your dues on time, this is best avoided.

A very safe practice to follow when you use your credit card is to utilise only around 30 per cent of your credit limit and limit the charges levied by your credit card company up to around 10 per cent of your credit limit.

These are safe margins and when you utilise your credit card safely within these margins it is a sure shot way to escalate your credit score.

It is always advisable not to draw cash using your credit card. The same interest rates that are applicable for purchases on cards apply, which is in the range of 2.7-2.85 per cent on a monthly basis translated to an annualized rate of around 38-40 per cent.

Note that in the case of card purchases there is a 30-45 day interest free credit period, whereas in the case of cash withdrawals the interest rate meter starts to tick from the moment cash is withdrawn. On top of this, there is also a withdrawal fee of about 3-3.5 per cent of the amount withdrawn.

Image: A credit card belonging to Madonna is displayed at the Madonna Materials of the Girl exhibition in Central London. | Photograph: Andrew Winning/Reuters