7 Benefits of Credit Card You Need to Know
A credit card is a payment card issued by banks and NBFCs. It makes online and offline transactions easier and hassle-free. Read on to know the 7 benefits of credit card and how to choose the right credit card.
7 Benefits of Credit Card in 2023
The following are some of the most significant advantages of credit card:
1. Globally Accepted Mode of Payment
The foremost advantage of using a credit card is that they are a globally accepted mode of payment. So, you can travel anywhere without having to worry about how much cash is left in your wallet. It also minimises the risk of theft by a significant amount.
2. Turn Repayment into EMIs
While there is the freedom to make a purchase using a credit card without worrying about affordability, one cannot exceed the credit limit. That said, you can convert high-value purchases into EMIs to make the repayment easier.
3. Interest-Free Repayment
The best part of paying through a credit card is that while making a repayment, there is no interest levied on the borrowed amount if you pay all outstanding dues before the credit-free period ends. This credit-free period usually ranges from 40 to 45 days. After this duration, there will be interest applied to the amount.
4. Rewards and Cashback
This is another alluring benefit of having a credit card. There are significant cashback and rewards on some of your favorite restaurants, shopping apps, etc. There is also a waiver on fuel surcharge in various petrol pumps across the country.
5. Credit Score
Credit cards can be of good use if you know how to make the repayment within the due time. If you make the repayments on time, it can enhance your credit score. A good credit score will help you avail of loans quicker and easier in the future and will also increase your credit limit.
6. Expense Tracker
While you spend your money through cash payments, you might lose track of how much money you have spent. This can make your savings and keeping track of your expenses difficult. However, with credit card payments, you get all of your expenses accumulated in a statement. This will help you keep track of your expenses.
7. Secure Payment
While making online payments, you always have to be careful that your money reaches the receiver. In the case of credit card payments, there is multi-factor authentication and also some security features provided by the credit card issuer, which make your payments secure.
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Disadvantages of Credit Card
While credit cards offer several benefits, such as convenience and the ability to earn rewards, they also come with some disadvantages. Here are some common disadvantages of using a credit card:
1. High-Interest Rates
Credit cards can come with high-interest rates, which means that if you carry a balance on your card, you may end up paying more interest charges than the original amount you borrowed.
2. Fees
Credit cards can also come with a variety of fees, such as annual fees, late payment fees, and balance transfer fees, which can add up quickly and increase the overall cost of using the card.
3. Temptation to Overspend
Credit cards can make it easy to overspend, especially if you don’t have a budget or a clear plan for how you will pay off your balance. This can lead to debt and financial stress.
4. Impact on Credit Score
If you don’t use your credit card responsibly, it can have a negative impact on your credit score, which can make it more difficult to get approved for loans, mortgages, and other types of credit in the future.
5. Fraud and Security Risks
Credit cards can be a target for fraud and identity theft, which can result in unauthorized charges and damage to your credit score.
What Factors to Consider while Choosing a Credit Card
Choosing the right credit card can be a challenge, as there are many options available and each card comes with its own set of features and benefits. Here are some factors to consider when choosing a credit card:
1. Interest Rates
Look for a credit card with a low-interest rate, especially if you plan to carry a balance from month to month.
2. Fees
Consider the fees associated with the credit card, including annual fees, balance transfer fees, and foreign transaction fees. Look for a card with low or no fees if possible.
3. Rewards
Look for a credit card that offers rewards programs that match your spending habits. For example, if you travel frequently, look for a card that offers travel rewards or airline miles.
4. Credit limit
Consider the credit limit of the card and make sure it is sufficient for your needs.
5. Credit Score Requirements
Check the credit score requirements for the card and make sure you meet them before applying.
6. Customer Service
Look for a credit card issuer with good customer service and support, in case you have any questions or issues with your card.
By considering these factors and choosing a credit card that matches your needs and spending habits, you can make the most of your card and avoid unnecessary fees or other pitfalls.
How to Use Credit Card in Right Way
Using a credit card in the right way can be a great way to build credit and make purchases without carrying cash. However, if not used properly, credit cards can lead to debt and financial trouble. Here are some tips for using a credit card in the right way:
1. Make Payments on Time
Late payments can hurt your credit score and lead to additional fees and interest charges. Set up automatic payments or reminders to make sure you pay your bill on time each month.
2. Pay in Full
Whenever possible, pay off your credit card balance in full each month. This will help you avoid interest charges and keep your credit utilization ratio low.
3. Keep your Balance Low
Aim to keep your balance at 30% or less of your credit limit. This will help keep your credit utilization ratio low and improve your credit score.
4. Use for Necessities
Only use your credit card for purchases that you can afford to pay off. Avoid using your credit card to buy unnecessary items or impulse purchases.
5. Choose a Card with Rewards
If you use your credit card responsibly, you may be able to earn rewards such as cashback, points, or miles. Choose a card that offers rewards that align with your spending habits.
6. Monitor your Account
Regularly check your credit card account to make sure there are no unauthorized charges or mistakes on your bill.
7. Don’t Open too Many Accounts
Opening too many credit card accounts can hurt your credit score. Only open new accounts if you need them and can manage them responsibly.
Final Word
Credit card uses have become increasingly popular due to the convenience and security they offer for making purchases. Although they offer several benefits, you should never make it a habit to keep using your credit card while building debt at the same time. Also, before applying for a credit card, make sure to compare the features of different card issuers to identify the best option.
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FAQs
Credit free period is the period by which the credit card holder has to make the repayment to avail of interest-free loan benefits. This can range anywhere between 18 and 55 days. After which, the lender will levy an interest between 22% and 48% annually on the outstanding amount.
Going beyond your credit limit can significantly hamper your credit or CIBIL score. It will also attract an over-limit charge or penalty on the amount you have overspent.
Credit cards are not only about credit limits and repayment. There are a few other charges associated with credit cards, such as late payment fees, joining fees, renewal fees and processing charges. One should be aware of these charges while getting a credit card.
The minimum amount due is the amount you should pay to the credit card issuer to maintain your credit card account. It is a small percentage of the total outstanding amount.
Yes, you can withdraw cash using a credit card. This can prove to be beneficial when you are running out of cash and have no other option. However, there will be additional charges levied on the transaction made.
Yes, it can be smart to have a credit card if used responsibly as it can help build credit, provide convenience, and offer rewards and benefits.
It depends on personal financial habits and goals. Using a credit card responsibly can provide benefits such as rewards and building credit while using a debit card can help avoid debt and overspending.
Yes, most credit cards can be used to withdraw cash from ATMs, but it’s important to note that cash advances typically come with higher interest rates and fees compared to regular credit card purchases. Additionally, ATM cash withdrawals may also have additional fees charged by the card issuer and/or ATM owner.
Disclaimer
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
