A credit card is a rectangular piece of plastic issued by a Financial institution to give the cardholder credit facility to help them pay for goods and services acquired by them. The credit has to be paid to the financial institution in a certain fixed period of time.
There are various types of credit cards as per the needs of the cardholder like secured credit cards, credit cards for rewards, fuel credit cards, co-branded credit cards, and cashback credit cards.
When used responsibly, credit cards can be really beneficial for earning rewards, traveling, handling emergencies or unplanned expenses, and also for building credit
Benefits of Credit Cards
Easy access to credit
The huge advantage of a credit card is that it’s easy access to credit. Credit cards operate on a deferred payment basis, which means you get to use your card now and pay for your shoppings later. The money used is not deducted out of your account, thus not impacting your bank balance every time you swipe.
Building a line of credit
Credit cards bring you the chance to build up a line of credit. This is crucial as it allows banks to view an active credit history, based on your repayments and card usage. Banks and financial institutions frequently look at credit card usage as a way to calculate a potential loan applicant’s creditworthiness, making your credit card an important parameter for future loans or rental applications.
If you plan on making a huge purchase and don’t want to drain your savings into it, you can choose to put it on your credit card as a way to pay. Additionally to this, you can also choose to pay off your purchase in equated monthly instalments, ensuring you aren’t paying a lump sum for it and impacting your bank balance. Paying via EMI is cheaper than opting out a personal loan to pay for a purchase, such as a television or an expensive refrigerator.
Incentives and offers
Most credit cards offer incentives to use your card. Ranging from cash back to rewards point accumulation each time you swipe your card, which can later be redeemed or used towards paying your outstanding card dues. Lenders also offer discounts on purchases made through a credit card, for example as on flight tickets, holidays or large purchases, helping you save.
Credit cards bring an interest-free period, during which your outstanding credit is not charged interest. Ranging from 45 to 60 days, you can avail free, short-term credit if you pay off the balance due by your credit card bill payment date. And so, you can benefit from a credit advance without paying the charges associated with having an outstanding balance on your credit card.
Record of expenses
A credit card keeps a track of each purchase made through the card, with a detailed list sent with your monthly credit card statement. This can be used to track your spending and purchases, which could be useful when chalking out a budget or for tax purposes. Lenders also give instant alerts each time you swipe your card, detailing the amount of credit still available along with the current outstanding on your card.
Credit cards bring additional protection in the form of insurance for card purchases that might be lost, damaged or stolen. Statement of the credit card can be used to vouch for the veracity of a claim, if you wish to file one.