Traditional financial sense always suggests that people should avoid using credit cards. The giant trap with credit cards is their irresponsible usage. If credit card use becomes uncontrollable, especially earlier in your career, it will invariably lead to a debt trap. However, if used responsibly, responsible credit card use can be powerful in taking your personal finance to the next level. Here are 10 good credit card uses that you can follow:
Building a good credit score
Most people need to take at least one loan in their lifetime, secured or unsecured. The interest rate of a loan often depends upon the credit score. A credit score is a quantitative summary of your credit history – how often have you taken loans, how regularly are you repaying them, what type of loan has been taken etc. Consistent credit card uses with balanced utilization, and regular repayments improve your credit score. The higher the credit score, the lower the interest rate.
Associated rewards with purchases
Most credit cards have many reward options associated with spending on purchases. These benefits could be in the form of discounts, cashbacks or offers. With purchases becoming increasingly online, credit cards are becoming increasingly popular. Just a simple change of payment method to credit cards can lead to many rewards.
A trend that is gaining popularity is co-branded credit cards. For this, you would need to analyze your spending pattern thoroughly. For example, it could be predominantly movies, travel, fuel or online shopping. Once you figure that out, you can opt for a co-branded credit card. You will get rewards for increasing credit card use while continuing with the same lifestyle and spending. These rewards can get quite significant when accrued over time.
Access to benefits and privileges
One of the most attractive propositions of any sound credit card today is access to a wide range of privileges. These include complimentary access to lounges at airports, concierge services, access to club memberships, complimentary OTT subscriptions and many more benefits. Unfortunately, these services individually come at a hefty cost. Nevertheless, utilizing these benefits is always a good reason to pick up and use credit cards. That said, it would only make sense if these fit into your current lifestyle instead of you trying to alter your lifestyle according to these privileges.
Interest-free advance money to spend
Perhaps the most underrated advantage of having a credit card is that you can spend without actually spending your money. A typical credit card allows you to spend money without spending money already in your bank or hand. This facility is available without any interest rate up to a stipulated period. There are two potential advantages to relying on credit card uses. First, you can spend the money on something other than these purchases, giving you flexibility. Second, if the money is unspent, it can earn interest from a savings account, term deposits etc.
Convenience during international travel
Especially when travelling abroad, foreign exchange attracts hefty fees and carrying vast amounts of cash is risky and inconvenient. Your credit card can give you access to easy foreign exchange. This foreign exchange is often at a cheaper rate than local banks and financial institutions. Be mindful of any foreign exchange fees your credit card might charge.
Protection against loss, fraud or theft
The riskiest form of money for loss or theft is cash that you carry with you. Once it is lost, it becomes near impossible to recover. With a debit card, in case there is loss or fraud, if a transaction goes through, money is debited from the account instantly. There is a very lengthy and uncertain procedure to recover these funds. However, when you use a credit card, even if a fraudulent transaction goes through, there is no loss of funds. You need to report the suspicious transaction to the credit card issuer and hold the transaction.
Recurring payments setup
Credit cards are the most popular and most convenient way to do that if you want to set up a recurring payment mode for purchases made at regular intervals. So whether you own a business or want to pay your subscriptions, you can make use of credit cards to set up automatic payments once and then forget about the hassles associated.
Protection against merchant default
Generally, purchases are made with cash or bank transfer as default payment modes. In this case, if you make a purchase, pay in advance, and then the merchant doesn’t deliver, you will find it difficult to recover money. However, this process is more straightforward if a credit card makes the payment. All you have to do is call the credit card company and dispute that charge. Then, subject to investigation, the company may issue a chargeback to you on the transaction.
Insurance cover and protection
Many credit cards, especially the higher-end credit cards, come with insurance covers for the credit card holder. Not just that, there are a lot of other offerings available. For example, if you pay for rental car fees and make use of a credit card, you get rental car insurance cover as well. In addition, product warranties and other such protection are available, making use of credit cards rewarding.
Most of us, especially those starting off our careers, find it challenging to raise money during times of emergency. At times of dealing with difficulties, credit cards can prove to be extremely useful. If there is a fund crunch or a liquidity crunch, every credit card gives you an interest-free period in which you can plan for repayment.
To conclude, it is essential to remember that responsible credit card use is critical in managing personal finance. Therefore, irrespective of the age at which you take a credit card, keep in mind that discipline in repayment and use of credit card is critical in ensuring that good credit card use. For more information, do visit Tata Capital.