Indian consumers have always been slow to adopt credit cards. In fact, there were only 3 credit cards for every 100 people in India in 2019 — a tiny fraction compared to the United States, where there are 32 cards for every 100 people.
With the Indian economy remaining predominantly cash-based and the internet rife with credit card horror stories, many Indians remain wary of credit cards despite the benefits of having credit cards.
Here are 3 common errors people make which leads to trouble down the line. Simple as they may sound, these are often missed out or under estimated.
1. Maxing out their credit card
One of the biggest mistakes new credit card owners make is treating their credit limit as a spending allowance — free money just waiting to be spent. However, maxing out your credit card can spell disaster for your credit score even if you pay it all off every month.
A discussion about credit limits on The Economic Times reveals how using more than 30% of your credit limit may paint you as a risky customer for banks, resulting in higher-interest loans down the line. Higher credit utilisation also puts you at risk of over-the-limit fees and penalty rates, and failing to pay off your charges in a timely manner leads to growing interest fees. Always be wary of how much you’re spending, and don’t spend more than you can afford to pay back every month.
2. Failing to read the fine print
To encourage more credit card users, many banks offer credit cards promising low interest fees and easy approval processes. Unfortunately, this has resulted in many consumers failing to realise what they’re getting themselves into, glossing over important details like annual fees and usage fees. For starters, Petal’s guide to credit card fees lists the major terms you need to know, such as:
• Automatic fees, which include application and processing fees, program fees, and annual fees;
• Usage fees, such as balance transfer fees, cash advances fees, finance charges, and foreign transaction fees;
• Penalty fees, like those charged for late payments and going over your credit limit; and
• Customer service fees, which often include paper statement fees and charges for replacing your credit card.
These charges will often vary based on your provider, and credit card offers that seem perfect at first glance may surprise you with additional fees down the line. Thankfully, many of these credit card fees are preventable, so long as you understand why they occur. Be sure to read the terms and conditions of any credit card offer you receive before signing up.
3. Not utilizing credit card promotions
With the growing number of credit card options in the country, banks tend to partner up with different retailers in order to provide unique rewards programs. While some may choose their credit cards based on the promotions available, others are quick to dismiss them — thereby missing out on some potentially huge savings.
In a previous Little Saves discussion on credit card reward points, we discussed how credit cards often have one or some of these:
• Balance transfer options, which give you points for simply transferring existing credit card balances from one card to another;
• Travel rewards and Air miles conversion, which let you convert your rewards points into air miles;
• Sign-up bonuses and joining bonuses, which reward new users with extra points or cashback options if they meet minimum spending requirements; and
• Annual fee waivers, which essentially allow you to pay off your annual fees simply by continuing to use your card.
Utilizing these promotions can help you manage your finances and give you more freedom. PaisaBazaar’s Naveen Kukreja also notes that keeping track of your rewards points is essential, as failing to redeem them before expiry is another common mistake that cardholders make.
Despite the low adoption rate, recent surveys have shown that more and more Indians are growing in favour of a cashless economy, with 79% believing that going cashless will have a positive impact on the country. Hopefully, as we see more banks offering easy-to-manage credit card options and more Indians doing their research and staying informed, credit card mistakes will soon be a thing of the past.