In this present digital age, credit cards have become an integral part of our financial support and the popularity of these cards is increasing day by day.
You can get the most offers in shopping through this card, also there are many advantages of using a credit card, but if this card is not used wisely, there is also a chance of loss. So unscrupulous people should use this card with enough caution otherwise there is a possibility of financial risk.
So it is very important to know the pros and cons of credit cards before deciding on a credit card. In this article, we discuss in detail what credit cards are, their benefits, risks, and how you can get the most out of using them.
What is a credit card?
A credit card is a payment card, usually issued by a bank or financial institution, that gives the cardholder the ability to borrow up to a certain limit to make purchases or withdraw cash, meaning you don’t have to have cash on hand when you buy something. If the loan amount is paid within the stipulated time, you do not have to pay any extra amount otherwise even though you have to repay the loan amount along with the applicable interest as per the terms of the credit card agreement.
There are several other reasons for the popularity of credit cards, such as with this card you get several attractive offers such as big discounts on prices, cashback, points on purchases, etc.
Besides, you can increase your credit score by using it carefully and responsibly, thereby enjoying additional benefits like higher credit limits, lower interest rates, quick loan approvals, etc.
Again, misuse of credit cards can lead to a bad credit score, denying you the added benefits of a credit card, and risking high interest rates if used carelessly.
However, all in all, it can be said that due to the multiple financial benefits of credit cards, if you use this card with awareness, you will be able to gain financial benefits to a large extent.
Credit card eligibility
There are certain eligibility criteria you must meet for credit cards and these vary from card to card. Eligibility requirements for getting a credit card are mentioned below:
| Description of criteria | Details |
|---|---|
| Age | Minimum 18 years and maximum 60 years |
| Income | A stable income |
| Employment | Salaried or Self Employed |
| Citizenship | Citizens, residents and non-residents |
Age:
Minimum age for credit card application is 18 years. However, for some banks, the minimum age is 21 years. Similarly the upper age limit may vary, but generally the upper age limit is 60 years.
Annual Income:
One of the credit card criteria is the annual income of the applicant, which determines whether the applicant is eligible for a particular card, but it does not mean that the applicant needs a high income, but rather whether the applicant is able to afford the credit card payments.
Credit score:
Before issuing any credit card its credit score must be checked where the card is issued only after checking the applicant’s credit history, payment history, payment default etc. However, there are also several entry-level credit cards designed for applicants with no credit history.
Citizenship:
There are different types of credit cards available, but generally citizens or residents and non-residents can apply for credit cards. However, there are some cards that are only available to citizens of that country.
Credit card usage rules
If you are going to use a credit card for the first time, you must have a clear idea about this card before that, otherwise you will never be able to do proper financial planning.
You must be well aware of the rules of this card to do a smart planning, so that you don’t fall into the trap of credit card debt and take advantage of the rewards.
Important points of credit card usage are listed below:
Grace period:
Grace period is one of the most valuable features of credit cards, knowing that you can take full advantage of credit cards.
The grace period is the period of time between the date of a billing statement and your payment due date or due date, usually 20 days, during which you pay no interest if you pay the bill in full.
Billing Date:
The credit card billing date or statement date is the date on which your credit card usage statement for the entire month is generated. This billing date is always the same every month unless the user makes an application to change the day. Knowing your card’s billing date is crucial for smart credit card usage planning.
Due date:
The due date is the most important day for a credit card user. This date will appear on your credit card bill or statement, which is usually 20 days after the billing date. You have to pay the credit card bill by this date or else you will have to pay a late fee which is a fixed amount, plus a high interest rate on the balance which you have to pay along with GST.
Minimum Payment:
You will see a ‘minimum due amount’ or minimum payment on your billing statement, which is an amount much less than the full bill, usually 5%-10% of the bill. This minimum payment means you can keep your credit card active by making this small payment.
But you should never make this minimum payment as it will result in higher interest rate on your balance amount meaning you will have to pay a higher amount in the next month’s bill. If you are unable to pay the full bill due to any inconvenience, try to pay as much as you can, your balance amount will be lower and you will have to pay less next month.
Late payment and finance charges:
If you ever forget to pay a credit card bill, you’ll have to pay late payment charges and pay high interest rates on the balance. You may find that not only will you be charged for days past due, but you will be charged interest on a daily basis from the date you used the credit card in the previous month, even during the grace period.
Also, if you miss paying your credit card bill more than once, your CIBIL score may deteriorate, resulting in less rewards and financial benefits from your credit card in the future.
Advantages and Disadvantages of Credit Cards
With credit cards you can avail various attractive benefits and that is the reason why these cards are so popular. However, if you do not use this card properly, you may face several difficulties.
First let’s see what kind of benefits you can get from a credit card:
Availability of credit or loan:
One of the biggest advantages of a credit card is its ease of access to credit. You can make as many purchases as you want within your credit limit with a credit card and pay for it later. Your credit limit mainly depends on your income and you can also increase your credit limit with a good credit score.
Cashback and other discounts:
One of the most attractive benefits of using a credit card is the opportunity to get cashback on purchases or services. You will benefit more from using a higher rewards credit card for the types of purchases or services you make more often, such as flight tickets, restaurant bills, movie tickets, grocery shopping, etc. In addition, you will get more discounts by using credit card on almost all purchases.
Credit score:
If you expect to get more benefits with credit cards, you must maintain a good credit score. Credit score is based on your credit card usage performance, i.e. how much you use your credit card and whether you pay your credit bills on time etc. The creditworthiness of the cardholder is determined from the credit score. When you apply for a loan, this score will determine whether or not it will be approved. A good credit score can get you a higher loan amount at a lower interest rate.
EMI Benefits:
You can also take advantage of EMI through credit card, for example if you don’t want to spend from your savings for a big purchase, you can take it through credit card and pay later or you can pay in equal monthly installments (EMI). It will be easier, cheaper and wiser for you to arrange EMI without taking a personal loan for any major purchases.
Interest free loan:
Another advantage of credit card is that if you make a purchase through credit card, you will get a minimum of 15 days to a maximum of 45-55 days until the date of payment of the bill, which is called ‘Interest Free Period’, where you do not have to pay any interest. Hence, credit cards are most popular for short-term loans without interest.
Travel Reward:
Credit cards are more convenient for those who like to travel a lot. The credit card made for the traveler will get you travel insurance, special discounts on flights, hotel stays, car bookings, etc., and points on almost all travel-related expenses. With some premium credit cards you also get special luxury benefits like airport lounge access or complimentary upgrades that you can enjoy at a lower cost only with a credit card.
Other benefits:
Credit cards have many other benefits such as keeping track of your total monthly expenses, availability of cash in case of emergency, you don’t need to carry cash all the time, good credit score allows you to apply for bigger loans, even if the country doesn’t have money when traveling abroad. You can use credit card etc.
Now let’s see what are the disadvantages of using credit cards and what customers should be aware of:
Debt trap:
One of the biggest risks of using a credit card is the possibility of the cardholder becoming increasingly indebted. You can easily spend with a credit card and pay later, making it difficult to keep track of how much you’re actually spending.
Also, if you pay the credit card’s minimum due, you are charged interest on the remaining balance. So if you don’t pay your credit card bill in full every month, the balance with interest can increase and you can get into a debt trap.
High Interest Rate:
Another major risk of credit cards is their high interest rates. If you don’t pay your credit card bill by the due date, it will be added to the next month’s bill with higher interest. Credit card interest rates average 3%-4% per month, rising to 36%-48% annually.
Credit score:
A good credit score is important for getting more credit card benefits, but if you make late payments or exceed your credit limit and are billed with high interest for late penalties, there is a chance that your credit score will deteriorate significantly, and as a result, your credit card. You will get very few benefits from
Credit Card Fees:
Another aspect of credit cards that you often overlook is its hidden costs, such as joining fees, renewal fees, and transaction or processing fees. Also, there are late payment fees for paying bills after the due date, which the cardholder must be aware of.
Unaccounted expenses:
Another downside of using credit cards is reckless spending habits. The lure of various credit card offers often leads us to overspend, as credit card purchases do not have an immediate impact on our bank balance so we often end up spending more than we can afford and as a result it becomes difficult to save money for the future.
