Three credit card mistakes to avoid to maintain good CIBIL scores, and avoid too much interest

Indians are increasingly using their credit card and transactions are steadily increasing and now exceed ₹1 trillion per month. This can be attributed to the resumption of air travel, hospitality as well as rising inflation, which has prompted people to opt for the “pay later” option.



A recent report by RBI indicates that credit card users spent three times more online than offline. On average, a user spends ₹14,500 on credit card per month, while debit card spending is only ₹700 per card.

Although a credit card has its advantages, it also has disadvantages that users choose to ignore or are unaware of.

Money Insider dives deep into the potential for global change in financial awareness. It brings together the best young voices in the industry educating millions of Indians and shaping the financial habits of Millennials, Gen Z and beyond.

One such influencer that helps understand complex labor laws for employees is Mandeep Gillco-founder of Labor Law Advisor.

Gill aims to simplify complex labor laws for India’s workforce and help them build a better financial future. His YouTube channel has over 3 million subscribers.

According to Gill, here are three mistakes to avoid when using a credit card:

#1 Don’t use more than 30% of your credit card limit
Let’s say you spend ₹40,000 every month with your credit card and pay the full amount before the due date. That’s fine, but if your total card limit is ₹50,000, that means you’re using around 80% of your total credit limit.

This makes you feel credit hungry and will negatively impact your CIBIL score. Therefore, a healthy credit utilization rate is around 30% and if you want to use more, be sure to increase your credit card limit.

The CIBIL score is a three-digit number ranging from 300 to 900, which summarizes your credit history, repayment report, and spending data. The closer your score is to 900, the better your credit score.

The CIBIL score plays a vital role in the loan application process, not only for banks, but also for credit card companies, mortgage lenders, car lenders, etc. Credit institutions analyze your creditworthiness based on your CIBIL score before approving the loan application.

#2 Do not withdraw cash
Withdrawing money from an ATM with a credit card may seem easy, but it can be very expensive for you. Indeed, from the first day, you will be charged about 2.5% to 3.5% interest per month, or 40% interest per year.

Note that you get around 50 days of interest-free period to pay your credit card charges, but this does not apply to cash withdrawals. Also, the credit card company will charge a late payment fee if you don’t return the cash advance by the due date.

#3 Don’t make a minimum payment
When you receive a credit card bill, you have two options: one is to pay the full amount and the other is to pay the minimum amount, which is usually 5% of the total outstanding amount. And one might even be happy seeing the minimum bill amount.

If one runs out of money, they end up paying the minimum amount due. While this option helps you avoid late payment fees, it’s where a lot of people make their biggest blunders.

This minimum amount will turn into 40% interest per year and you will not even benefit from a 50-day interest-free period.

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