Manage Money

A Complete Guide To Credit Card Management

What are credit cards?

Credit cards are a type of loan issued by banks or credit card companies to make cashless transactions with a pre-set credit limit. Based on your credit history, credit score, and your income, the lender determines the credit limit.

How does a credit card work?

Unlike other forms of consumer loans, credit cards charge a higher interest rate called Annual Percentage Rate (APR). An APR calculates the percentage of the principal you will pay each year through the monthly payments you make. It is the interest rate for a year rather than a monthly rate or fee applied on other loans.

Every time you make a purchase using a credit card, your card details are sent to two banks, the one that issued you the card and the merchant’s bank. Your bank will verify your information and then proceeds to authorize or decline the transaction. If authorized, your bank pays the merchant’s bank and the amount available in your credit limit comes down.

By the end of the month or the end of the billing cycle, you get a statement from your bank with the list of all the purchases made in that period. The statement includes a total amount and a minimum due amount you need to pay. It is wise to pay off the total amount that helps you avoid paying any interest on the credit you use. If that’s hard on you, you have to pay the minimum due amount before the given date to avoid getting a default on your name. The remaining balance will be carried forward to the next billing cycle along with interest applied on that balance.

How are they different from debit cards?

By appearance, both credit cards and debit cards look the same. However, the key difference is that a debit card gives access to funds that you deposited in your bank account. The credit card on the other hand gives access to funds that a lender gives to you as credit.

Credit Card

Debit Card

Impacts credit score

Does not impact the credit score

Interest is applicable on the balance

No interest is applied

Offers rewards and cashback

Comparatively lower rewards and cashback

The credit limit is set

No credit limit

Can be used on a wide range of websites, merchants, and also abroad

Provided with limited access

Eligibility criteria include salary, credit history, income source, etc.

All you need is a bank account

Billing by the end of the cycle shows the purchases and amount owed to the lender along with the applicable interest.

Nothing is billed. Can access a monthly bank statement to see the number of purchases and transactions that took place in that period.

A debit card allows you to make cashless purchases but also allows you to withdraw money without any charge from an ATM, unlike a credit card where the transaction is chargeable adding more for you to pay back by the end of the billing cycle. And, since it is your money you wish to access, approval of a debit card is not as hard as approval of a credit card.

A credit card allows you to spend money more than you have and pay it back any day before the given date. It is vital to make the payments on time in order to maintain a strong credit history resulting in a strong credit score. As we mentioned earlier, you can use a credit card online on all e-commerce merchant websites. Some of these websites also offer attractive credit card deals on purchases.

Pros and cons of using a credit card

You may hear conflicting opinions about having a credit card. You can decide by yourself by going through the pros and cons below.


Build credit

Credit bureaus look at your credit history and your repayment history to see how you handle your credit. Based on this, they prepare a credit report that would decide your future loan prospects. A credit card is a type of loan that helps you improve your credit report with the right payment record. It also helps the financial institutions to analyze your creditworthiness by looking at your credit utilization, which should be ideally below 30%. By keeping the usage below that range, you are showing in the record that you are not totally dependent on the credit you take. Moreover, you can also apply for a secured credit card that is backed by a cash deposit which would directly improve your credit score.

Quick access to funds

A credit card lets you make a purchase now and pay for it later. It works on a deferred payment basis. It helps you use the funds given to you without actually spending your own money on the spot and pay it later when you are able to. So it is the best cash replacement option to carry around in your wallet. And, being accepted by almost all retailers and businesses worldwide, you can carry it around all the time. Even if you lose the card, a replacement will be sent to you. This is not the case with money.


Credit card issuers earn profit through the interest charged on your card by the end of the billing cycle. However, the lender gives you the liberty to pay off the amount due sooner and avoid being charged interest. Credit cards also come with an interest-free period, in which your outstanding credit wouldn’t be charged interest. A period ranging between 45-60 days will allow you to avail free and short-term credit that you can pay off without paying any extra in the form of interest. Furthermore, in purchases, you can opt for an EMI option through your credit card as a way to defer payment.


Most credit cards come with offers and incentives for users to attain by using the card. Each time you swipe the card, these offers are accumulated ranging from reward points to cashback. Lenders also offer discounts and redeemable points for use on special purchases such as flight tickets, large purchases, etc. A few cards even offer sign-up bonuses to attract consumers.

Purchase protection

A credit card can give you protection to the purchases made, unlike cash purchases. If your card has been misused for an unauthorized purchase, then you can report the lender about it and avoid paying for that particular transaction. If you lost the credit card, you can immediately block it and request a new one, for which, financial institutions will oblige to.

Easy to track

Budgeting is easy with credit cards. With the record of every transaction, you can easily track your spending through the statement sent to you. Lenders also let you set an instant alert that would let you know when the card is used along with details like the remaining balance and current outstanding credit.


Minimum due

A minimum due might seem like a lifesaver option but in fact, is the last option you should use for your credit card. It is vital to pay back all the amount you owe to the lender. On the statement, the lender mentions a minimum due amount you need to pay in order to avoid default. Users might think that paying such a small amount would be enough but not paying the remaining balance would incur huge interest during the next billing cycle. Sometimes the interest can go as high as 50% if not paid on time. So, make sure you have enough money in your savings account or your checking account before the due dates.

Debt trap

Purchasing through a credit card is tempting as you have access to funds that do not diminish your bank balance upon use. But revolving credit can make you spend and owe more than you can payback. This leads to the beginning of a cycle of debt and high-interest rates on future payments. It is wise to spend on expenses that you can reasonably afford to pay back each month. Preparing a budget may also help to stick to limited spending.

 Costs that can’t be seen

Credit cards incur several payments if not paid attention to. You need to look out for late payment fees, joining fees, renewal fees, and processing fees. If you miss any monthly payment, a penalty will be charged to you and more late payments would result in a default on your profile or decrease your credit limit which eventually would impact your credit score negatively.

High-interest rates

Not clearing the dues before the given date can carry the amount forward to the next cycle with applicable interest. This interest will increase over time on purchases made after the interest-free time period. Though the average rate can be 3% per month, it can go up to 36 to 50% over the year.

Negative impact on credit score

Improper use of credit can cause you trouble by leading you into a cycle of debt as well as decreasing your credit score. You should avoid missing the payments or late payments and using the credit too much. These would directly affect your credit utilization and repayment history. Make sure you have an alert to remind you of timely payments and keep enough amount in the source account by the end of the billing cycle to pay the due in full.

How to use a credit card wisely?

Upon being used wisely, a credit card is a resource that helps you in times of need. If not, it could be a trap that you fall by yourself. It is vital that you take a few measures to keep your purchases under control after applying for a credit card and let it work in your favor.

Check annual fees

The first thing you ought to find out about a credit card is how much annual fee does a lender charge you. There are cards that charge low to no fees. A few premium cards, on the other hand, do charge high annual fees. Stay clear from these cards as you may find it a burden to pay huge fees in the long run.

Keep credit utilization low

It is advised to keep the credit card utilization below 30%. Credit bureaus look at the signs of good credit by calculating your credit utilization and analyzing your dependency on the credit. Higher the utilization, the higher the dependency. Which is not a sign financial institutions take positively. Keeping credit card usage below 30% or having your own limit below that range would make you think before going for a large-ticket purchase. Limited usage means a limited amount you are due to pay back.

Make timely payments

Lenders charge high interest on the outstanding balances on credit cards. By not paying your credit card bill on time, you are piling up the interest on the due balance making it harder for you to pay back. By missing out, you are extracting a heavy toll on your credit score. By making timely payments, your repayment history gets stronger and your credit score increases. The lender may also offer an increase in credit limit and offers on other financial products based on your repayment history.

Always pay more than the minimum

Paying the full balance will help you avoid paying the hefty interest charged on the balance. By paying only the minimum due amount, you are allowing the balance to go forward into the next billing cycle with interest applied. Even at times when you can’t afford to pay the full balance, try to pay more than the minimum due amount.

Pick high-interest credit cards and pay them off first

The cycle of debt is vicious if you are not being careful. You don’t want too many credit cards on your name showing your dependency on the credit. Be strategic about it and list out all the credit lines you have. Choose the credit card or cards that you are paying high interest for or have a high outstanding balance. Plan out paying off this line of credit first by still taking care of the payments of other cards as much as you can.

Track your purchases

By tracking your spending, you are embedding a discipline that would go a long way toward proper credit management. By observing your spending pattern you are aware of your credit and how much the purchase you are about to make is going to affect that credit. And, in the long run, how the affected credit can influence your debt. Furthermore, by tracking your purchases, you know if there is any transaction wrongly placed on your card and raise a dispute sooner than later.

Utilize rewards but cautiously

Rewards make credit cards more exciting to use. Lenders purvey different incentives and offers such as discounts, cashback, free travel or accommodation, etc. Check out cards that make your transactions more exhilarating. However, do not give in to a large-ticket transaction just to get a reward on it. Remember, rewards and incentives are tricks to lure you to apply for a credit card and make use of it to the full extent. Carefully look at the rewards you get and use the card wisely.

Avoid using credit cards at the ATM

A few credit cards do allow users to withdraw money like a debit card. However, these transactions are heavily charged with interest which will end up being a burden on you while repaying. Avoid using credit cards at the ATM as much as you can and only use them if there are no other options available.

Keep your credit card information secure

Credit card frauds are common all around the world. Be aware of scammers and use credit cards in establishments that you trust. Avoid transactions with your card on unknown websites and make sure your CVV, expiration date and One Time Passwords are secure.

Hopefully, you got a good sense of credit cards and the better use of them with the information above. The final takeaway is to keep your credit profile strong with proper credit management. Decent credit history and credit score are essential for future credit which you may not know that you need just yet.

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