5 MinsJune 19, 2020
Credit cards serve various needs. From regular shopping to paying utility bills to withdrawing cash in case of an emergency. In a sense, it is a short-term unsecured instant loan. If you pay on time, within the due date, you are not charged any
interest. Let us see the benefits of paying credit card dues on time.
Save on high interest rates
- Credit cards have the highest interest rate for any loan product. The rate can be as high as 35-40% on an annual basis.
- It is calculated on the outstanding amount and on a daily basis.
- If you don’t pay your credit card dues on time, your outstanding amount can balloon to a significant sum due to the high interest rate.
Avoid paying late payment fee
- This fee is charged if you fail to pay even the minimum amount due on your credit card.It depends on the outstanding amount.
- While you can avoid paying the late payment fee if you pay the minimum amount, you will still incur interest charges if you don’t pay off the outstanding in full.
- One way out is to pay off as much as you can afford to, even if you are unable to pay off the whole outstanding amount. This will reduce your interest burden to some extent.
Available credit limit remains high
- Every credit card has a total credit limit which the bank sets depending on your income, credit score, employment and other factors.You may spend up to your total credit limit.
- There is also an available credit limit. This is the amount that is left after you have swiped your card.
- For instance, if your total credit limit is Rs 50,000 and you have spent Rs 25,000, then the available limit on your card is Rs 25,000. Until you repay that amount, the available credit limit will continue to be Rs 25,000 and you may find
it insufficient in case of an emergency requirement.
[Also Read: Get The Best Out Of Your Credit Card]
Positive impact on credit score
- Paying credit card dues on time and in full ensures your credit score remains high and is positive for your credit history.
- It is an indication that you as a borrower are creditworthy and prompt with your repayment.
- When you apply for a loan or another credit card the bank will take this into consideration and sanction your loan faster or maybe approve a higher amount.
Bank may increase your credit limit
- If you repay your credit card dues on time, and in full, your bank may offer a higher credit limit on your card.This is helpful in case you need funds in an emergency.
- A higher credit limit is also helpful as it can keep your credit utilisation ratio low. This ratio is the difference between your credit card limit and how much you actually spend on the card.
- If you have a high credit limit, but utilise only a part of it and also repay it regularly, it is seen as a positive and may help in improving your credit score and history.
- The lower your credit utilisation ratio, better is the impact on your credit score.
If you had opted-in for Moratorium
The Moratorium facility recently offered by banks, based on Reserve Bank of India guidelines, is aimed at providing short-term relief to borrowers who may be facing pressure on their finances. If you
have opted-in for the Moratorium, you are spared from paying your credit card outstanding for the June to August 2020 period. The late payment fee is waived off and there is no negative impact on your credit score. But remember, the interest
during the Moratorium period has not been waived off. It will get added to your credit card outstanding. Therefore, the outstanding amount will be higher in August, which you will have to repay in September. Hence, post the Moratorium, it
is important to ensure that your repayment is back on track and you continue to pay your credit card dues regularly, so that you can enjoy the benefits mentioned above.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.