tendency to pay just the minimum amount required. The liability becomes huge after some time.
Managing your credit capacity
It is important to build a good credit capacity (or rating) by judiciously using the credit options available to us. You need to consciously build a good credit score that will enable you to get higher credit in case of an emergency. Instead of driving yourselves into a situation that would require external help like that of a credit counseling agency, try to nip the evil in the bud and figure ways to manage your finances effectively. Using credit does allow you to spend more on goods and services now. But it also reduces the money you have for future needs as a part of your future income will be used to pay for the services or goods you are buying now.
Taking inspiration from what Benjamin Graham said - credit has become a reality of life as certain as death and taxes. To manage our credit better, we have to follow a few ground rules.
Here are a few beginners’ tips that can prove useful:
- Pay the credit card bills on time. No exception.
- Mind your credit scores. If you feel your card details have been compromised, take it up immediately with the bank, which has issued you the card
- Pay your EMI regularly. Any default will damage your credit score and hence creditworthiness.
- Do not use too many credit cards.
- Avoid treating credit cards as easy money. This is the money you have to pay back with high interest if you make it a habit to pay only the minimum amount due every month.
- Do not buy unnecessary items just because it is available on zero credit and low EMI. Remember its money spent!
- Always try to increase your down payment when you take up a loan so that your monthly liability doesn’t eat into your savings.
Finally, credit doesn’t increase your purchasing power. It just brings future purchasing power to the present and gives you a false impression that it has increased.