Credit cards are ideally financial instruments that can be used for your everyday purchases like fuel, shopping, groceries, online payments and more. Apart from the convenience, credit cards help you to build your credit score, handle emergencies / unplanned expenses, earn rewards & points, have global acceptance amongst others.
Top features & advantages of credit cards
- Sign-up Bonuses: Most credit cards offer some form of bonus for signing up with them. These can include card Joining fee waivers, shopping or travel vouchers, free flights, reward points and more.
- Rewards: Credit Card rewards come in different ways. These could be Rewards Points or Cashbacks or Frequent Flyer Miles. These can be redeemed for statement credit, gift cards, airline tickets, hotel stays and more such options depending on card to card. Rewards rates too vary as per the card and depending on the redemption options can go as high as 40% from time to time.
- Safety: The biggest advantage of a credit card above debit card is that money isn’t debited from the account instantly. Hence, frauds can easily be caught without any financial impact to the credit card holder. Almost all credit cards offer fraud protection. All you must do is raise a complaint or dispute to the customer care within a stipulated timeframe and the credit card issuer takes care of the rest of the process. Card-Holder in most cases need not pay the amount till the credit card issuer has resolved the dispute or investigated the fraud. On a Debit card, there is no chance to contest and retain the money.
- Grace Period: Credit Cards are a great way to achieve an 18-52 days of credit on all kinds of transactions.
- Global Acceptability: A debit card may not be useful on your foreign trip or for that matter even on some online portals. Credit Cards are one of the most widely accepted mode of payment globally. Credit Card Platforms like Visa, MasterCard, Amex and Diners offer worldwide acceptability.
- Helps build a good credit score: Credit cards are essentially unsecured loans – a loan sanctioned without any collateral based only on the borrower’s creditworthiness. Your first credit card is most likely to be based on your salary slips or relation with the bank. Over time you pay up credit card dues on time eventually building a record for consistent payments leading to a healthy credit score.
- Complimentary Loyalty program Membership – Some of the top-most credit cards offer Elite tier membership to Hotels and / or Airline Loyalty Programs helping cardholder achieve elevated status during stays or travel.
- Complimentary Airport Lounge accesses – One of the most widely used benefits of Credit Cards by Travelers, Complimentary Airport Lounge accesses are a great way to relax before or between connecting flights. Depending on the category of Lounge these can offer food, refreshments, shower, beds and a lot more for free.
As you can see, most of these benefits are unique to credit cards and put credit cards well above debit or forex or prepaid cards.
Before you get excited and go apply for one (And you should apply for one), you must understand how they work and where the credit card issuers are waiting for your mistakes to increase their revenue. Understanding these basics while using credit cards will help you avoid any kind of additional charges, fees or penalty and elevate your credit card ownership experience:
- Maintain Self-discipline: Use only as much as you can repay immediately. Using a credit card responsibly is a key to maximize the rewards rate. It is easy to go overboard, swipe your card indiscriminately for purchases you don’t need and get into a debt trap.
- Understand all the charges & fees: Read through the fine print and understand all the fees like APR (Annual Percentage Rate), Late Payment charges, over-limit charges, cash withdrawal fees etc.
- Always opt for full payment instead of Minimum Dues: Timely and complete payment of dues ensure that you don’t incur unnecessary high interest rates and / or any penalty or late payment fees over. It also helps build a good credit score.
- Understand APR (Annual Percentage Rate): Making partial or late payments comes at a very high price. Credit cards have a monthly interest that can go as high as 4% translating to a whopping 48% per annum with GST applicable over and above this. In an unavoidable scenario, opt to use the card with lowest APR to minimize charges
- Do not shop for Credit Card Rewards but be aware of the best possible credit card or a combination of credit cards for maximising reward rate when you spend. If in doubt of the best deals, reach out to us.
- Avoid crossing Credit Limit: Credit cards come with a credit limit decided by the issuing bank based on the cardholder’s Financial status. In most cards, you won’t be allowed to spend beyond the credit limit, but some cards may allow you to spend more. Additional fees will be levied in such instances in the range of 2.5% of the amount spent over the credit limit. Again, GST will be applicable on these additional fees.
At the End, I leave you with this intriguing quote on credit cards:
Don’t cut up your credit cards, the problem is not the cards, it’s the lack of financial literacy of the person holding the cards and always make the best out of a bad situation.
– Robert Kiyosaki