There is a saying that good habits if inculcated early on in life prove rewarding later on. Same applies to financial habits as well. When we are in our 20s we just enjoy our new found financial freedom and take to credit easily to fulfill all our dreams. Inadvertently, we commit certain mistakes too. Here are some mistakes that you should refrain from making if you have just stepped into 20s.
Maxing out credit card limit
Once you have landed up a job and money starts flowing into your bank account, flurry of credit card companies will offer you credit cards. This means now you can get yourself anything that you have denied yourself for years. In such a scenario, falling for them is no such big deal. However, maxing out the limit allotted on such cards can land you in trouble. Firstly, you would have no credit available when you really need it; and secondly, it would get difficult for you to repay such huge amount. As a result, you would have to pay the minimum due amount and leave huge revolving credit which will could put you in a debt trap.
Suppose the total credit limit on all your cards is Rs 3 lakh and you utilize Rs 2.7 lakh out of it. Repaying such a huge amount at one go is difficult, so you pay the minimum due amount of 5% i.e. Rs 13,500. In this manner, by the end of the year you would be trying to pay approximately Rs 4 lakh (interest rate of 48% per annum). One should only spend an amount one can pay off soon and not plan to pay the minimum amount due every month.
Falling for auto approved loans
Then there are auto approved personal and car loans as well that are linked to your salary account. Such loans are enticing, but expensive—especially personal loans, which come in the form of unsecured loans and carry huge interest rates. If you fall for them mindlessly, they eat up most of your salary in the form of EMIs. If you keep availing loans only because you are eligible for them and lose half of your income only towards meeting EMI payments, it will get difficult for you to maintain same standard of living as earlier.
Ignorant about building a good CIBIL credit score
While payment through credit cards is a good way to build a credit history, establishing a good CIBIL score requires more efforts. In case of credit cards there is no compulsion to pay the full amount spent every month. However, it is important that your balance amount is as low as possible. The balance to limit ratio also known as credit utilization ratio should not be more than 30%. The higher the ratio, the lower is your CIBIL score and vice-versa. Credit utilization accounts for 30% of your CIBIL score. Repayment history makes up for another 35% of the score. So, make sure that EMIs for all your loans should be paid on time.
Careless with your wallet
Credit cards are offered not by banks alone. Nowadays, even fashion retail giants like Shoppers stop and Pantaloon tie up with banks to offer their own credit cards to you. While this arrangement offers convenience to you, so many credit cards in your wallet means more credit are at high risk of theft. In order to protect your credit, you should go for credit protection plans. At present, the same is offered by CPP India and One Assist. By taking such plans, you need not inform each credit card company about the loss and request to get them blocked. By making a single call to these companies, you can get this work done and stop credit card misuse. There are different membership plans available to choose from.
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