Credit card companies offer a variety of cards to meet individuals’ needs. These cards are issued in collaboration with Amex, Diners Club, Master, Maestro, RuPay, and Visa, to name a few. Large companies from the private or public sector also tie up with credit card issuing companies to issue Corporate Card to their employees. Premium cards also provide access to airport lounges and other benefits. These are some of the reasons as to why get a credit card.
Why get a credit card?
- No need to carry cash: Instead of having many currency notes in your wallet, the plastic credit card does the trick. Money in the wallet keeps worrying people about insecurity, anxiety, and safety, and credit cards prevent it.
- Reward Points: The merchant’s tie-up helps the cardholder to get cashback, discounts, special offers on purchases, frequent flyer miles, hotel vouchers, airline vouchers, reward points, free fuel on select cards, etc. Reward points can be redeemed easily.
- Convenience and Purchase Protection: The 128-bit encryption offered by websites and 2-factor authentication make it convenient and safe to carry out online shopping transactions. This also provides purchase protection for a limited period.
- Emergency Cash: Credit cards can be used to withdraw cash from ATMs to the extent of the cash limit, but it attracts heavy charges.
- Build credit history: Credit card transactions and their repayment help the holder build a credit card history. Defaults in repayment reduce the holder’s credit score and timely repayments improve it. Building a good credit history facilitates getting loans for meeting financial goals.
Why use a credit card
- Initial Offers: Many credit cards are lifetime free; other cards levy joining fees and annual fees. The premium cards offer shopping vouchers, special discounts, etc. Other credit card offers bonus reward points or miles, which could be redeemed for hotel & travel vouchers, gift cards, merchandise or statement credit, etc.
- Universal Acceptance: The rental car companies or hotels, preferably, accept credit cards because it’s easier to charge customers for the damages they might have caused to car or hotel property. While travelling abroad, merchants may not accept debit cards, but credit cards are an acceptable proposition almost everywhere, defining the benefit of why use a credit card.
- Cash Back: The cash-back credit card was introduced by US company Discover. 1% of the spending was credited to the card account. In the current era, the cashback concept has become popular when credit card companies offer 2%, 3%, or 5% of the spending as cashback subject to a quarterly or annual spending threshold.
- Safety: Credit card use protects the holder from possible fraudulent losses. Additionally, the holder is not out of funds – the holder has to inform the credit card issuing company of fraud and needn’t pay for the transaction not initiated. In contrast, the credit card company resolves the fraudulent transaction issue.
- Insurance cover: Travel accident insurance is free on most cards. The accidental insurance coverage for air travel is much higher than for road travel.
- Payment or Grace Period: The credit card bill is generated on a specific month’s date. After that, at least 15 days are available for partial or complete payment of the bill generated. Assuming the holder has made a purchase immediately after the monthly bill is generated, the holder gets up to 50 days to pay for the product or service purchased.
How to use a credit card
- Controlled Spending: The credit card holder could end up in a debt trap if the spending is not controlled. Keeping a tab on the credit card expenditure will help prevent splurging money. It’s possible to set up spending limits for various transactions, which will curb the expenses.
- Limit Utilization: Putting an upper cap on spending, the holder can settle the credit card bills on the due date. Utilizing an appropriate portion of the limit helps the holder maintain credit discipline. Regular bill payments on or before due dates will help build a good credit history.
- Checking Credit Card Statements: Regularly checking the credit card statement aids in tallying the spending made during the billing cycle. It also helps prevent extraneous charges that might have missed attention in the past.
- Pay Credit Card Bills on Time: It’s a good habit to pay credit card bills on or before the due date to get maximum benefits of using a credit card. Non-payment of bills on or before the due date attracts late payment charges, finance charges, and GST. It could affect the monthly budget besides affecting the credit score.
- Easy EMI options: On big purchases, merchants collaborating with card issuing companies offer flexible EMI facilities ranging from 3 months to 12 months or even higher. Moreover, pre-approved loans are provided to the extent of credit limit, payable in EMIs at an attractive interest rate.
- Contactless Chip Credit Cards: These cards could be used for payment without contact by tapping or waving them on a point-of-sale (POS) device. RBI has set up a limit of Rs. 5,000/- for contactless transactions.
A credit card offers several benefits in the form of convenience, cashback, reward points, insurance, safety, purchase protection, grace period, online access to the card account, security etc. It has to be used judiciously to avoid getting into a debt trap. During emergency situations, it could be used to draw cash from ATMs or make large payments, which could be converted into easy EMIs. Enjoy great benefits with credit cards from Tata Capital.