Due to the global pandemic, many are suffering from a loss of income or have received a significant pay cut. In such a situation, you need to manage your use of Credit Card Tips responsibly and carefully. While a credit card comes with its own set of advantages, it also needs to be handled cautiously. Oftentimes, during low income, if you use your credit card, your credit scores fall significantly. It is important to maintain a high credit score because it gives you the reputation of a responsible borrower. In future, if you ever apply for a loan, your lenders will look at your credit scores to determine your past performance and a high credit score will easily let you get a loan from your bank.
Here are some tips on credit card use during a loss of income.
Spend within your Credit Card Tips utilization
Your credit utilisation limit will automatically be low if you are earning less. In that case, using your credit card will easily lead to ‘maxing out’. Credit utilisation should usually be around 30% and spending beyond that will bring down your credit scores significantly. During low income, you should use your credit card as little as possible and pay your bills on time. This will give you an image of a responsible borrower. Use cash as often as you can and make a habit of limiting your credit card usage to a minimum.
Do not miss the due dates
If you apply for a credit card, you have to understand the importance of the due date first. As a credit cardholder, you will receive your credit card bills with a specified date within which you will be required to pay all your due amounts. It is extremely important that you do not miss the date; otherwise, it will bring your credit scores down. A missed date will also show up on your credit card report and will give you the reputation of an irresponsible borrower. In the future, when you apply for home loans, car loans or the likes of it, you will not be able to find lenders with missed due dates on your credit card report. Make the due dates one of your priorities and pay it off at the first chance you get. Set multiple reminders if needed but make sure you do not miss it.
Avoid buying on impulse
If you are living on a low income or just starting your career, you cannot afford to indulge in impulse buying. If you use your credit card for impulse shopping, you will sink into debt even before your orders reach your doorstep. At the start of your career, you need to be responsible about handling your credit card so that a few years down the line, you can actually afford to give in to your impulse. If you spend irresponsibly, you will spend a large part of your career recovering from the debts you incur in the beginning. So say no to impulse buying. If you get a sudden strong urge to buy something, sleep on it and by the next day, you will most likely decide not to buy it. Since most of the impulse shopping takes place in online stores, you can also avoid shopping online altogether.
Avoid using your credit card just to earn reward points
It is true that your credit card will accumulate reward points and will even give you cashback in certain cases, if you use it to buy things. However, these discounts, reward points and cash backs are not worth the debt you are going to incur or the trouble you are going to bring upon yourself, if you bring down your credit score by maxing out on your credit card. Using your credit card just to earn reward points is definitely not a good idea. Reward points will actually amount to something significant if you are earning a lot and have a high credit limit. You can start taking advantage of discounts, reward points etc. in a few years when you start earning more. Until then, use your card only when needed.
Keep an eye on interest rate
As a credit cardholder, you will be required to pay interest on it. The interest rate is usually high on lower limit credit cards. The interest rate comes down significantly if you are a gold or platinum cardholder. Therefore, keep an eye on the interest rate and the annual fee you have to pay from your hard-earned money. Do not apply for credit card if you are required to pay high interest on it. You can wait for a few more years and once you start earning more, you can apply for any credit of your choice.
If you are on low income or recently suffered a pay cut, these are all the things you need to keep in mind when it comes to using your credit card. If you are responsible with your spending, you will eventually overcome your loss of income.