Credit cards come with a host of benefits. Here are 5 reasons why you shouldn’t shy away from using credit cards.
As per the data released by the RBI, the number of credit card transactions (including both POS and ATM) witnessed upswing of 2 crore in March 2019. Although such data sets indicate increased acceptance of credit card as a mode of payment, many consumers still remain hesitant towards the idea of owning a credit card, primarily due to their fear of over spending and landing into a debt trap. What needs to be understood is that disciplined usage of credit cards can actually be in your favour. Apart from saving you from the need to carry physical cash, credit cards come with a host of benefits. Here are five reasons why you shouldn’t shy away from using credit cards:
Disciplined usage can help build strong credit score
As credit card transactions are equivalent to taking loans, repayment of credit card dues has the same impact on your credit score as any other loan. But unlike loans, using credit cards does not involve interest cost as long as the bills are paid in entirety by the due date. This makes credit cards the most cost effective and convenient way of building your credit score. Make sure you timely repay your credit card bills in full and contain your credit utilization ratio within the limit of 30%-40% to build a strong credit score. Apart from enhancing your eligibility, a high credit score would also assist in availing loans at lower interest rates.
Reward points, cash backs etc. reduce your overall transaction costs
Credit cards offer a wide range of benefits such as reward points, discounts to gift cards and vouchers. You can make the most of these benefits by opting for a credit card whose reward points and benefits structure suits your lifestyle and spending pattern. For instance, if you are a frequent traveller who incurssizeable travelling costs such as ticket’s cost, dining and hotel stay, you should consider opting for a travel credit card.
While selecting a credit card, make sure you not only factor in the annual/renewal fees, but also the reward points, discounts, cash backs, vouchers and complimentary benefits offered, as these help in reducing your overall transaction costs. Choose a card whose benefits outweigh the associated costs by the widest margin. Additionally, remember to redeem the accumulated reward points timely, as most credit cards’ reward points have an expiry date, post which the redemption option may not be available.
Availability of interest-free period
Interest-free period refers to the period between the date of credit card transaction and the due date of payment. During this period, the credit card issuer does not charge any interest on your transactions, as long as the entire dues are repaid by the bill due date. This period can range anywhere between 18 days and 55 days, depending on the date of your transaction. To make the most of this interest period, time your major credit card spends in the beginning of your billing cycle. In case you have multiple cards with different due dates, spread your transactions amongst them in such a way that a majority of those transactions fall in the beginning of their respective billing cycle.
Facility to convert big purchases into EMIs
We often delay big ticket purchases such as purchasing laptop, television or even smart phone due to insufficient cash or bank balance. The EMI facility on credit cards is meant to solve exactly this purpose. Credit cards come handy at the time of making big-ticket purchases on EMIs and thereby help ensure your finances are not stretched beyond control. The easy EMI facility, which involves conversion of transactions above a threshold limit into EMIs, allows you to conveniently repay by choosing a tenure usually ranging between 3-48 months, along with lower interest rates of up to 1.5% per month. The facility of converting your entire outstanding credit card balance into EMIs is also offered by lenders, with tenures up to 60 months.
Additionally, most credit card issuers have been tying up with various merchants to offer the option of no cost EMI, wherein consumers need not pay any interest on purchases made through their credit cards, with a shorter repayment tenure (3-12 months).
Instant pre-approved loan for urgent monetary needs
Credit card issuers often offer pre-approved loans to the existing cardholders who have displayed consistent bill repayment history. Pre-approved loans do not involve any documentation and therefore, probably have the fastest processing time, with loans usually being disbursed either instantly or within a few hours. Keep in mind that the interest rate charged on such loans may be slightly higher than that of a personal loan, depending on factors such as customer’s credit profile and the type of credit card they hold. And, the loan amount would depend on the credit card’s limit, and if the card issuer is confident about the customer’s repayment capacity.
(The author is Head of Payment Products, Paisabazaar.com)