What are the Benefits of Credit Card and Why Buy Them?

Credit cards are financial tools that enable customers to avail credit on purchasing goods and services. Customers need to repay this amount which is billed by the bank every month. This card is usually made of plastic that enables customers to make cashless transactions.

While credit cards are often stereotyped with being a liability, there are several benefits of credit cards as well. A credit card has become an indispensable part of our lives and we cannot ignore the fact that it has revolutionized lending in India. In this blog, we will discuss the following topics for you to have a deeper understanding of credit cards:

Table of Contents

• What are credit cards?
• Benefits of credit card
• What factors to consider when choosing a credit card?

What are credit cards?

A credit card is a credit facility wherein you can borrow funds within a pre-approved credit limit set by the bank enabling a cashless transaction. The credit limit is decided based on factors such as credit score, income, and debt of the credit card holder. These cards are usually made of plastic. Credit can be availed to purchase goods and services online as well as offline. Banks set a grace period of 40-50 days for a customer to repay the bill. This is the period when a purchase is made and the date of paying the outstanding amount. If the customer exceeds the deadline of this period, he will be levied a finance charge which could be around 3%.

Benefits of Credit Card

Credit cards have become an important tool when it comes to personal finance. Listed below are a few benefits of credit card use:

1. Emergency use in case of fewer savings

One of the benefits of credit card use is that it enables users to spend out of their pockets. Therefore, you can make purchases through a credit card when your savings are low. It comes in handy when you don’t have enough funds to make a purchase or deal with an exigency. Additionally, it gives a credit-free period of 45 days for repayment. Therefore, regardless of lower savings, you can handle any eventuality smoothly.

2. Improvement in credit score

A credit score is a number that shows how effectively you repay loans. Financial institutions and banks assess your credit score before issuing a loan. The higher the credit score, more will be the chances of accessing credit. Credit score depends on factors such as bill-paying history, debt, number, type of loan accounts owned, current usage of credit, duration of loan accounts, etc.

A higher credit score not only helps in getting loans quickly but also at a lower cost. A higher credit score gives the bargaining power to customers for receiving the best services. Several banks and NBFCs offer a lower interest rate to customers who have a good credit score. Additionally, you get a variety of options to choose from when your score is high. Therefore, it is always advisable to take a credit card at the beginning of your career, so that you can build a strong credit score and avail a home loan or personal loan in the future depending on your needs.

3. Purchases on EMI

You can choose to convert your billed amount on an expensive purchase into Easy Money Installment (EMI) over a long period of time through a credit card. This way, there won’t be any burden to repay the entire amount in one go. EMIs can help in increasing affordability for customers.

4. Cashback offers and deals on credit cards

Credit cards offer additional benefits to their customers. Several discount deals, cashback, and reward points are provided on payments that aren’t available in other financial instruments. Several credit cards also offer numerous privileges such as complimentary lounge access at domestic and international airports, complimentary access to OTT, access to gold courses globally, and birthday benefits.

5. Balance transfer credit card

There are a few credit cards that give the facility to transfer pending credit card dues to another credit card account, even if it’s not from the same bank. This way, you can lower your applicable interest charges. Suppose, you have high outstanding dues on one credit card with a high-interest rate. You can choose to transfer the dues to another credit card that offers a low-interest rate. Therefore, you can easily pay your dues by reducing your financial stress.

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6. Maintain sound financial status

Being conscious of your spending and timely repayment of dues help in building a healthy financial status. Responsible use of credit helps in maintaining a good credit score, thus opening doors for better opportunities in the future.

7. Globally accepted method of payment

While your debit card may not be accepted everywhere across the globe, credit cards are accepted every where across the globe. You don’t have to worry whether it will be an acceptable mode of payment or not. You can go cashless without the worry of exchanging the currency.

What factors to consider when choosing a credit card?

Before buying a credit card, you should consider the following factors:

1. Finance charges: These charges are applied on non-payment or part payment of dues or ATM withdrawals. Finance charges range from 22-47% depending on the type of card. It is suggested not to withdraw cash from a credit card due to high-interest charges. However, comparing these charges is important because you might have to do the same at the time of an emergency.
2. Fee levied: Several credit card companies charge fees such as joining fees, annual fees, late payment fee, reward fees, etc. Joining and annual fees usually range between Rs 199- Rs 5000. It’s important to check these charges before choosing a credit card. Always prefer a card that gives discounts, reward points, and cashback that will outweigh these charges.
3. Check credit and cash limits: You should check the credit limit offered on the card before buying one. The credit limit is the maximum amount that you can draw against the card for making purchases or withdrawing cash. The credit limit is decided by the issuer based on credit score, repayment history, income, and other key factors. Some banks will charge over-limit charges when exceeding the credit card limit. So, choose a credit card that has a higher limit. This will also help you avail of loans at a higher amount with the help of a loan against a credit card.
4. Expiry of reward points: Check the expiry of reward points offered on the credit card. Most expire within 2-3 years of being earned. However, there are other credit cards that offer reward points with no expiry.
5. Credit score: Credit score is a key factor for approval of credit card applications. Customers with a credit score of 750 or above have a higher chance of getting approval for a credit card. Get a free credit card report before applying for a credit card and check for any errors. Report to the credit bureau for any discrepancies to prevent reducing credit scores.
6. Joining bonuses: Several credit card issuers offer welcome bonuses and additional benefits upon purchase. These especially include travel and premium segments. Compare various credit cards for their monetary value of joining bonuses before making a decision.

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Summing up

Buying a credit card is a wise decision if used effectively. Credit cards are very useful during financial emergencies when you don’t have enough savings. Moreover, they provide a lot of discounts, reward points, and deals for the benefit of consumers. Having a good credit score can also increase your chances of availing of personal loans at a higher amount. To conclude, you should definitely consider buying a credit card but use it responsibly. Inculcate habits such as repayment of dues on time and managing expenses judiciously to utilize maximum benefits.

Contributed by: Bhanvi Arora