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9 Tips to Manage Your Credit Limit Efficiently

Credit Card Shopping

Credit card sounds like a blessing when you need to buy something urgently but don’t have the cash in hand. Remember that credit card is not ‘free money’ and you shouldn’t just swipe it every time you feel like. It is extremely important that you use the credit card responsibly — if you don’t, you would find yourself drowning in debt before you know it.

Credit cards are powerful financial tools that can help or hurt your money management skills. If you are a credit card owner, the following 8 tips will help you manage credit cards wisely so that you can enjoy their benefits.

  1. Track Your Spending

One of the most important things to managing credit responsibly is tracking where you spend the money. When you understand where exactly the money is being spent, you will be less likely to overdraw your account. Track your credit card spending as well in order to avoid going over the credit limit.

  1. Keep the Debt Low

Borrow as little as possible. Ensure that you try to borrow only what you need whether it is for education, home or car. The total debt payments should not be more than 36% of your monthly income for a good credit score.

  1. Have Different Types of Credit Account

Lenders usually check the different types of credit accounts you have had in the past. It is a good idea to have a mix of revolving accounts and installment accounts. Revolving accounts (credit cards) show that you are capable of paying down your debt periodically without going over your limit while installment accounts (personal loan or mortgages) show you can make a fixed and timely payment over time.

  1. Keep a Check on the Credit Score

Every time you carry a balance, it hurts your credit score, even if you make on-time payments every month. Your credit utilization, i.e., how much credit you use vs. how much total credit you have available, accounts for about 30 percent of your FICO credit score. Lower the credit utilization, the better it would be. However, if you carry a balance regularly, especially one that puts you at or near your credit limit, it could damage your score.

  1. Attempt to Pay In Full Every month

One of the best ways to avoid the balances growing due to interest is to pay off the debt in full each month. When you pay off the entire balance amount, you won’t have to worry about the interest being added to your bill.

  1. Never Skip Payments

As ideal as it would be, it isn’t always easy to pay off the entire balance in just one payment. In such cases, make sure that you pay the required minimum payment for each month. Don’t skip monthly payments as it will result in an additional late fee. Moreover, the missing payment will be reported to major credit bureaus. The missing payment will impact your credit score as well, which will make it more difficult to get loan approvals in the future at good interest rates. Make the minimum payment or the largest you can afford in the month rather than skipping the payment entirely.

  1. Don’t Close Old Accounts

It might be tempting to close an older credit account but refrain from doing so. The length of your credit history matters. A longer credit history can help your credit score and make you look more responsible. Good credit management relies on improving your credit score.

  1. Beware of Fraud Schemes

It is easy to become victims of credit fraud schemes. Be aware of common scams and understand how you can avoid them. Some tips to avoid credit card fraud include:

  • Shop only on online websites that are securely encrypted to protect your personal information
  • Never share the card number or 3-digit code in a public space, like social media
  • Don’t use an ATM or gas station pump if you suspect the machine has been tampered with or contains a credit card skimmer
  • Regularly monitor your account to identify any fraudulent purchases. Make sure that you immediately report these suspicious charges to your credit card company and dispute the charges.
  1. Check Your Credit Report Regularly

In order to manage your credit in an effective manner, you need be aware of what is   happening in your credit file. You are entitled to a free copy of your credit report when you write in under certain conditions. Ensure there are no fraudulent accounts and that all the errors are fixed. Since inaccuracies in credit report can lead to a lower credit, you must keep an eye on it and make sure it is accurate at all times.

Lastly, live within your means. Just because you have a personal line of credit, it doesn’t mean you use it for purchases you don’t need or cannot afford, even when you buy on credit.

About the author:

Shiv Nanda is a financial analyst who currently lives in Bangalore and works with MoneyTap, India’s first app-based credit-line. Shiv eats, breathes and sleeps finance, to the dismay of friends who’ve endured unsolicited advice on their investment choices, budgeting skills, or lack thereof. Luckily for them Shiv has diverted this energy toward writing about various financial topics online. He loves it when people actually ask him for advice, so email him your questions at shiv@moneytap.com. He’ll try not to get carried away with the answers!

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