This is the age of contactless transactions. Modern financial products like credit cards, debit cards and online wallets are great ways to keep cash transactions to a minimum. However, when it comes to owning a credit card, people are often advised against it. There is no doubt that irresponsible usage of credit cards can lead to serious debt traps.
But, if used within limits, credit cards offer a lot of perks and long-term benefits. If you want to apply for a credit card, but remain sceptical, consider these benefits.
#1: Opportunity to Build Good Credit Score
If you are a responsible spender and pay your bills on time, credit cards can help you build a good credit score. Your credit score (or CIBIL) is a way for financial institutions to evaluate your creditworthiness. A good score has several long term benefits. From getting decent home loan repayment terms to obtaining personal loans and business loans, people with good credit score have a lot of benefits. Credit card users with a good credit history are also prioritized by banks to receive better interest rates.
#2: Convenience for Payments
Credit cards can offer a lot of conveniences in terms of making purchases. You can make big-ticket purchases on EMIs, so that your finances are not stretched. In case of emergencies like sudden hospitalisations or cash theft, you can use credit cards to cover fund insufficiencies. When travelling abroad, credit cards can help make payments if you are not carrying sufficient local currencies. In fact, some purchases can be only done with credit cards. For instance, making hotel reservations or renting a car, where the company gets additional reassurance that the card will cover additional costs you may incur.
It is necessary to compare various credit card offerings, terms and conditions to choose the best one that suits your needs.
#3: Discounts, Cash backs and Rewards
Apply for a credit card to avail several rewards in various kinds of purchases. For example, if you spend a lot on car fuel, a fuel credit card can offer a certain amount of surcharge waiver. You can also accumulate points to redeem later. Similarly, a travel credit card could be good for frequent travellers, who can get a lot of rewards, airport lounge access and more on flight and hotel bookings.
#4: Financial Planning
Credit cards can be the best ways to plan expenses. With a monthly statement of account, you can keep track of your spending habits and plan your monthly budgets. It can be a way to cut back expenses since you cannot spend beyond your credit limit.
#5: Safer Payments
With credit cards, it is easier to avoid payment frauds. If your credit card is used by a thief, you can notify the bank and cancel payments already made at any time. Money is spent against a line of credit, rather than drawing from any bank account.
This is unlike debit cards, which gives a fraudster instant access to all the money in your account. The money spent by them gets immediately debited from the account if they have access to any account credentials, ATM pin or your mobile phone. However, both credit cards and debit cards are loaded with extensive security features nowadays to prevent misuse.
Credit cards can indeed be a great way to increase purchasing power. However, make sure to understand all the terms and conditions of a card before applying for one.