5 times you shouldn't use credit cards

and three times when you should actually use them...

Using your credit card smartly can benefit you greatly; by smartly we mean not only keeping the credit utilisation ratio low but also using it at the right places. There are a few occasions when using your credit card is advisable and then there are occasions when using the credit card might not be such a good idea.

So what are those times when you should swipe your card and when should you not? While some occasions might be general, some usages might be specific to the type of card you have.

When to swipe the credit card?

Credit cards offer some additional or special features when compared to other options. This makes them ideal for usage in certain conditions.

When purchasing an expensive item

Though it may sound contrary to what you may believe using the credit card to make a big ticket purchase could actually be a good idea. Credit card companies offer fraud protection when the card is used to make a big ticket purchase; this may come in handy if the customer wants to dispute the charge in case of an error or the customer wants to return the item especially in case of a defect.

By purchasing the item through the card you are assured of being able to track the sale easily in future, if required, and you may get extended warranty also on some occasions in case of electronic items.

Travel or refuelling in case of co-branded cards

In case you have a co-branded card or a special card that offers some benefits like discounts, no surcharge or extra benefits when used for specific purpose then make sure you use that card when make a transaction at the specific outlet. Such cards are most useful when getting fuel; buying fuel is something which is unavoidable and a regular event.

So make sure to check what are the terms and conditions and use the card accordingly. The same applies to booking tickets or hotels especially through online portals.

Using these cards get you not only some privileges but also help in accumulating reward points. Sometimes additional discounts may be offered by retailers if a particular brand card is used.

When shopping online

In case of online shopping if you use your debit card then the amount is debited from your account immediately and you have no protection in case of a fraud. Since credit card transactions are processed in batches you have sufficient time to dispute the charges. Apart from this credit card companies offer fraud protection with zero liability and they keep a lookout for fraudulent transactions.

When not to use your credit card

If you have a credit card in your wallet it does not mean that you whip it out and use it on every occasion. Do not forget to use the traditional cash option and the debit card once in a while.

In case of an emergency

If due to some reason there is a requirement of cash then using a credit card should be ideally avoided. Withdrawing cash using a credit card is very expensive; most credit card issuers charge exorbitant fees on cash withdrawals made using the credit card and you have to pay a transaction charge too!

The transaction charge is usually around 2.5 per cent of the cash withdrawal and the interest charged by the credit card company could range from 24 per cent to 48 per cent depending on the credit card issuer's policies. It is better to use a debit card, pay through cheque or go to your nearby bank branch to withdraw money from your account. This effort is worth it as it helps you save unnecessary expenditure.

When paying cash gets you a better deal

Sometimes paying cash is better because the seller may be offering a discount on a cash transaction or there may be times when the seller may charge extra for swiping your credit card. In such situations it's better to use cash if available or a cheque.

Some more occasions when using a credit card may not be the best choice:

• At foreign locations, sometimes using a credit card may involve a transaction charge. Check with your credit card company before travelling.
• At fairs and flea markets, as these shops are temporary, and in case of a dispute it will be difficult to track them. In such places benefits of using a credit card outweigh the potential dangers.
• Recurring billing: This could prove to be headache if the biller continues to bill you even after you end your membership or subscription.

Photograph: Bryan Rosengrant/Creative Commons

The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.