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How to avoid credit card penalties: A Beginner's Guide

April 21, 2023

Table of Contents

    Table of Contents

      Best Practices & Tips for keeping your Credit Card Payments in check and avoiding Penalties. Detailed Guide to better understand your Credit Card Statement.

      Congrats on getting that new credit card! Now that you’ve got yourself this shiny plastic card, it’s kinda obvious you’ll spend it doing/buying things you love. While you go about doing that, we are here to guide you on how you can avoid credit card penalties

      Not sure if you’re using your credit card in the right way? This detailed guide on using a credit card should help.

      Now, when you use your credit card, a credit card bill is what follows next, usually by the mid of every month.

      As a first-time credit card user, receiving this credit card statement online with financial jargon might seem challenging to read.

      The terms and percentages in it can be confusing and, quite frankly, overwhelming.

      But, all these figures are important to understand what your credit card statement uncovers.

      Terms like your due amount, balance you have left, when you have to pay your bill, and most importantly – why it’s essential to make timely credit card payments.

      Continue reading this blog, where we decode various aspects of a credit card and help you read that credit card statement in a way that lets you make the most out of it.

      Building a Strong Financial History with Credit Cards

      Credit cards allow you a convenient option to save your money and earn some rewards. If you pay monthly balances on time, you create a better credit score for yourself.

      Apart from helping you achieve a healthy credit score, paying up your credit bill on time helps you build better financial habits and make you a responsible credit card user.

      As you tread ahead by paying regular payments, you’ll notice an increase in your credit scores.

      A boost in your credit score makes you eligible for loans and credit cards with lower interest rates. And you can also improve your financial terms for borrowing.

      Starting small by using only a tiny proportion of your credit limit is your surefire way to build a solid financial history.

      Besides, it also helps you build better financial habits and make you a responsible credit card user.

      Ready to take the plunge? Let’s start by explaining how a credit card statement works.

      Credit Card Statement Explained

      In simple terms, your monthly credit card statement is nothing but a document that provides information about your last month’s purchases, often called credit card billing cycles.

      It’s a summary of all your transactions in the previous month like Credits, Payments, Cash advances, Balance transfers, Interest charges, Fees, and Due amounts.

      Your credit card company generates a statement at the end of each billing cycle. Usually, you receive it when you have any activity or an outstanding amount on your account.

      It’s also possible there is no transaction or a due credit in a cycle. In such cases, you may or may not receive the statement.

      Here is an overview of each element that a credit card statement contains:

      Statement Period

      The statement period runs for a set amount of time, like a month. For instance, if your statement period begins on 8th April 2022, it will end on 9th May 2022.

      Luckily, banks also offer an interest-free period of up to 55 days if you start with no outstanding balance. To stay interest-free, make sure you pay off your balance before the end of it!

      Here’s another important thing - the interest-free period is calculated from the start of the statement date and not the purchase date.

      Payable Finance Charges

      Your statement also includes finance charges. These are payable at a monthly percentage rate on outstanding transactions and cash advances when the credit card user does not pay in full.

      Minimum Due Amount and Due Date of Payment

      Your payment due date is on top of the statement period. It’s the date when you have to repay the amount on your credit card. If you make any payments after this date, it may be subject to interest and late fees.

      But what if you’re unable to pay the whole amount by the due date? In such instances, you should spend at least the amount mentioned under ‘Minimum amount due.’ Paying less than this will incur late payment fees in addition to finance charges.

      Earnings and Rewards

      The rewards are the last section of your statement. It lists all the rewards that you earned throughout the period. But it’s only for the users with a rewards program.

      It enlists information on points carried over, redeemed, expired, or lapsed. Here, you can find the details of your point balance from both the previous and the current statement periods.


      If you use your credit card for online shopping, you can benefit from discounts, cashback, and no-cost EMIs. Some companies also provide benefits for frequent travelers.

      You can use lounge access, discounts on stays and cabs, air miles, etc. If you’re a movie buff and food lover, you can use your credit card for deals on various online entertainment apps.

      How Paying Bills on Time Helps Avoid Penalty Fees and Increase Your Benefits?

      Nobody likes to be chased with constant company calls asking you to pay your credit card due. Not to mention paying off your monthly credit dues with added charges. Because who loves paying extra?

      As adults, we know you understand how important it is to pay your credit card bill on time and the constant dilemma you face keeping up with adulting and timely payments!

      But, think of it like this – a credit card user who pays the due on time or before the due date is likely to avoid fees and enjoy more rewards in terms of travel points, air miles, free coupons, and discounts than someone who fails to make regular payments!

      But apart from this, there are other pretty good reasons you should make a habit of clearing your credit card dues within the stipulated time.

      After all, regular, timely clearance of credit dues can help you -  

      1. Stay Away from Debt Collectors

      Credit card companies hire debt collectors when customers don’t send their payments on time.

      They could either be a person or company that collects payments for past-due accounts.

      If your account goes into debt collection, you lose the option to pay minimum monthly dues.

      2. Avoid Higher Interest Rates

      If you exceed the 60 days limit on your credit card payment, the interest rate will increase.

      For most cards, it could be as high as 30%. The penalty rate will stop applying if you pay on time six months in a row.

      However, it could still apply to new purchases and even other cards with the same company.

      3. Minimize the Risk of Low Credit Score

      At least 35% of credit score depends on whether you make timely card payments or not.

      Missing a credit card payment can majorly impact your credit score. Your credit card account could be closed, and your balance could skyrocket.

      And it could affect your credit score. So, never miss a payment!

      4. Lessen your Monthly Payment Amounts

      Your missed credit card payment can land you in trouble in the long run. You’ll face not only a late fee but also two minimum payments and a high-interest rate.

      So please don’t put off the minimum payments; it will only make it harder to catch up in the future.

      5. Get Better Insurance Rates

      Credit score and insurance rates? You might think that that’s a strange correlation, but it’s not.

      Insurance companies rely on your credit score to determine rates for insurance policies. And a late credit card payment can only make your credit score worse.

      Bad scores can lead to increased insurance rates for policies you want to purchase next month.

      So, if you wish to reduce the insurance rate for your car, then improving your credit score could be the key.

      Best Practices and Tips for Keeping your Credit Card Payments in Check

      Using credit cards can get tricky. Especially when you are not careful about your purchases and take monthly payments very lightly.

      And forgetting these payments can make life difficult for you. Not to mention the hefty penalty fees included in your due if you fail to pay your credit card bill for a longer period.

      No one wants a messy situation like the one we described above. So, we suggest you follow some best practices mentioned below.

      Incorporating even a few of these ways can make you manage your billing routine effectively and avoid financial risks:

      1. Set Reminders and opt for Auto-payment

      Missed Payment? You would have to pay the penalty, but it won’t affect your credit score.

      To avoid this scenario in the future, you can either set a reminder on your phone or choose the auto-payment option.

      This way, the bank will deduct the amount automatically from your account on the due date. You can still pay before the next billing cycle starts.

      2. Check the Charges for Responsible Usage

      Credit cards have many charges that could make them expensive. The annual fee is the charge for just using the facility.

      So make sure to ask before applying for a card. A late payment fee is when you fail to make timely payments and ranges between 20% - 40%.

      ATM withdrawal charges are a cash advance fee when using a credit card to withdraw cash. It also includes interest on the amount on a per-day basis.

      3. Keep a Low Balance

      Maintaining a low credit balance helps in keeping a good credit score. Keep your credit utilization low; 50% would be an excellent way to start.

      So if you spend Rs. 25000 from the available credit limit of Rs. 50000, you can lower the ratio. It would also help you in easier repayment and avoid any fees.

      4. Always Ensure You Are Paying More Than the Minimum

      If your total credit card bill is Rs. 5000, your minimum amount due is 5% of it. The minimum amount comes to Rs. 250, but you should try to pay the total amount.

      Credit card companies charge a 3% interest on the remaining amount after paying Rs. 250. So, you might even end up paying more in the long run!

      5. Monitor Your Expenses

      You just realized you’d overspent your credit limit. Make sure you keep checking up on your credit card transactions.

      Credit card companies send you a monthly statement listing all your monthly expenditures.

      This way, you can control your spending habits and manage them better.

      Credit Cards: An Excellent Credit-building Tool If Used Responsibly

      A credit card is a simple way to pay for a product or service. It offers fraud protection and chances at earning rewards, along with a variety of other perks.

      Plus, it can help establish a credit score and qualify you for the best loans, lending institutions, and lowest interest rates.

      While they sure are convenient (for most of it), they can quickly become detrimental if you’re not careful.

      The key to using this plastic currency responsibly is educating yourself about your financial ins and outs.

      So, use that credit card and avail various benefits that come with it but don’t forget to pay your bills on time!

      Still, have some questions in mind? These FAQs can come in handy.

      Credit Card FAQs:

      1. How do credit cards work?

      A credit card is a financial tool banks provide to help users borrow money for purchases, services, or cash advances.

      2. What is APR?

      APR is the Annual Percentage Rate – the interest rate paid on users’ charges if they fail to pay within the grace period.

      3. How much should I pay at one go?

      Always aim to pay the total credit card bill amount, so you don’t have to spend more than you can pay.

      4. How much time do I have for making payments once I receive my statement?

      You have 21 days after the closing date mentioned in the statement. If you don’t pay at that time, you might incur additional interest.

      5. Does my statement show all the purchases?

      The statements disclose only the stores you purchased from but not the individual items.

      6. Who has the authority to see my statements?

      Auto and mortgage lenders and credit card issuers can see your credit statements to determine your creditworthiness. So, make sure to keep your credit score high.