According to Reserve Bank of India, a total of 50.3 million credit cards were active in India which increased by 10.1 million in one year from june 2018 to june 2019. It was been around 44.2 million active credit cards in december 2018. So, clearly market and buisness of credit cards is increasing rapidly in India as it gives many benefits to the consumers so consumers got easily attracted to it. But you know what if there are advantages of credit cards then there are many disadvatages also of credit cards. In simple words if you not take advantage of it...it will take advantage of you.
So, before talk about credit cards we should know about credit score and credit reports.
What is credit score?
Credit score is a character certificate of a person in financial sector. It is use to find that the person is eligible for debt or not.
Suppose your friend asking you some money and you give it to him because he is your friend, you know him personally and you believe on him that he will give back your money one day. But jus think once if an unknown person will ask to borrow some money from you. Will you believe him and give him? Absolutely not.
So, when you go to bank or finance company to apply for a loan they check your credit score to find whether you make payment at time or not. If your credit score is not good you will not get approved for loans.
Credit report
Credit report shows your payment history. Have you make your previous loan payments at time or not? Companies like CIBIL has tied up with all the banks and finance companies they collect data every month from the finance companies and make a report on it. And this report is use to calculate your credit score and eligibility of a person.
What are credit cards?
Credit card is a plastic money issued by banks which allows you to purchase your needs using your credit.
In simple words, credit card is a type of loan which you get from the issuer and you can use it whenever you need to make payment. You can make payment anywhere like booking a movie ticket, train ticket, hotel anything you want to pay online. Even you can swipe your credit cards to make payment. There is a limit of amount you can transact from your credit card. The limit depends upon the issuer that what is the maximum amount they offer you after seeing your income.
Advantages of credit cards
1. Rewards
Who doesn't want to get cashbacks on their purchases. In this rapidly growing economy and increasing inflation everyone want to save and purchase from there which can give them cashbacks. The great advantage of credit cards are rewards and cashbacks.There are many companies offering credit cards. You just need to select which is prefferered for you. Lets suppose if you're a student buy one that gives cashback on books. If you like to hangout with your friends buy one which give cashbacks on movies and restaurants. If you like to travel buy one that gives cashback on travel tickets, airline tickets. And when you make payment credit card company also gives you some credit points which you can redeem in future as discount.
2. Do not need to carry cash
Carrying a lot of cash with ourself is not possible nowadays because it is not secure enough and yes it atrracts lots of attention of people which is not good for ourself. People think too much for carrying even 50000 rs with them so credit card give you an option that you don't need to carry that much cash with yourself. Simply carry credit card and you can make payment through it anywhere.
3. Gives you Convenience
Credit card is the most convenient method rather than any payment methods. It gives a monthly statement that where and when you have spended your money. Which can be helpful for you to keep eye on your spendings and taxes. You don't have to make online payment through your debit card make it risky by putting your account information online you can make online payment through credit cards which is secure because if any incident happens it can not be go above the limit.
4. You can check your free credit score
As checking your own credit score again and again can affect your score so now many credit cards companies offers you to see your credit score free. They print your credit scores on your monthly credit card bills so you do not need to check your credit score.
5. Helps in building credit score
If you are using credit cards and make all bill payments within the time which results in good credit score. A good and high credit score can help you taking a loan easily. If you want to buy a house, you want to start a buisness, you want to buy a car, you want to educate your children in a high fee institution, this high credit score will get you a loan easily. But if you are not using credit cards thinking that it has many disadvatanges and we shouldn't use it then, you have to face many problems while getting approval for loan. Yes using credit cards for some people is very difficult because they cannot control their spendings and end up getting debt which has a very high interest.
6. You can use it in emergency situations
If an emergency situation has occured like someone got hospitalize or insurance due you can take a loan and you don't have to pay any interest on that for 50 days.
7. Gives you EMI options
Another advantage of credit card is while purchasing online many online platforms doesn't offer EMI options on debit cards and many people usually cannot afford to buy it in cash. So credit cards gives you the option of EMI on goods purchasing.
8. Fraud security
If someone try to do fraud from your debit card then the risk is the whole the amount which is available in your account can be withdraw. But in the case of credit card there is a limit that anyone cannot withdraw beyond the limit and you also get insurance with your credit cards you can claim your fraud amount from insurance company.
9. Can be use in abroad
The another great advantage of credit cards is that you can use it to make transactions in abroad also. If you like to travel in foreign countries then you should have a credit card. But credit card company charges some amount to convert currency.
10. Automatic bill payments
The another great advantage of credit cards is that if you don't want to get tension of every bill payment and dont want to remember tha dates, you can set it to make payment like electricity bill, DTH bill, phone's bills, etc. to automatically. The bill will be paid automatically from credit card at the exact date you set.
Disadvantages of credit cards
1. High interest rates
If you do not pay your credit card bills at time the interest will eaten you up. The interest rates of credit cards varies between 2.5-3.5% per month. Now you are thinking what is the big deal in it to paying 2.5-3.5 % per month but when you will calculate it as per annum the interest rates will be 36-40%. So, when you try to earn 15-20% interest by investing on the other hand you are paying 40% interest on your liabilities. Is it fair? Thats why it is called the most expensive loan in the world. So tell me are you gonna get a credit card and if yes please use it carefully.
Click here to know how to the ways of investing.
2. Withdrawing cash from ATM
If you withdraw cash from ATM via credit card, the interest will be start to applied from the date of withdraw. So, please do not withdraw cash from ATM if its not an emergency situation.
3. Credit score
If you are using credit cards and do not making your payment at time it will directly affect your credit score which results in problems while getting a loan approval because of low credit score. And still if your loan gets approved you will have to pay high interests on loan because of low credit score.
4. Minimum payment amount
Credit cards companies usually ask you a small amount as bill because as less you pay as high they will earn interest.
Suppose you have spended 10000 rs in a month they will send you the minimum payment bill of 1000 rs. only. So that they can earn interest on 9000rs. So please try to pay your whole amount if not then try as much as possible.
5. More spendings
If you don't control your spendings, you will end up spend more than your income. Credit cards encourages you to spend more and more so that they can earn interest for a long term. So if you don't have control on yourself you should not use a credit card.
Click here to get some tips of saving money
Exclusion
Credit cards should be used as a backup if you don't have funds at the time you can take a small loan to pay your liabilities. I am not saying you to not using the credit card and is not beneficial if you use it responsibly you can earn many rewards and take many advantages of credit cards as we discussed in the article.
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