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Credit cards UPSC NOTE

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  Why Use Credit Cards for Building Credit? Starting young establishes a credit history, crucial for future financial goals (home loans, car...

 Why Use Credit Cards for Building Credit?

  • Starting young establishes a credit history, crucial for future financial goals (home loans, cars).

  • Responsible Use Benefits: Credit cards allow building a profile without high interest charges (unlike loans).

  • Rewards and Savings: Cashback, reward points, and discounts can be earned with responsible credit card use.

How Credit Cards Improve Your Credit Score:

  • Bill Payments (Highest Weightage): On-time payments demonstrate responsible credit use and improve your score.

  • Missed payments negatively affect your score through the "Days Past Due" section in your credit report.

  • Avoiding Debt Spiral: Paying only the minimum due leads to high interest charges and potential debt traps

  • Aim to pay the entire balance to avoid this.

Credit Utilization Ratio (CUR):

  • Ratio of credit used compared to total available credit (lower is better).

  • Maxed-out cards and struggling to pay bills negatively impact your CUR.

Strategies to Maintain a Low CUR:

  • Credit Limit Increase: Request a credit limit increase from your bank to improve your CUR without changing spending habits.

  • Example: If your limit is ₹2 lakh and you use ₹1.7 lakh, your CUR is 85%. Increasing the limit to ₹4 lakh lowers your CUR to 42.5% if spending stays the same.

  • Multiple Credit Cards (Used Responsibly): Having multiple cards increases your total credit limit, potentially lowering your CUR. However, ensure you can manage payments on all cards.

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Learnerz IAS | Concept oriented UPSC Classes in Malayalam: Credit cards UPSC NOTE
Credit cards UPSC NOTE
Learnerz IAS | Concept oriented UPSC Classes in Malayalam
https://www.learnerz.in/2024/06/credit-cards-upsc-note.html
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