What are the benefits of using a credit card?

Posted by Sanjaykale on August 19th, 2016

Credit cards can be thought of as plastic money. Issued by financial institutions (mostly banks), they offer money (credit) that needs to be repaid within a stipulated time.
Credit cards are a handy way to make payments and keep a record of your purchases. All you need to do is swipe your credit card online or at retail stores and you are done. Many also use these cards to pay monthly bills, insurance premiums etc.




Besides being convenient, there are other benefits of using credit cards too.

• Cash back: Many banks offer cash back opportunities if you use your card to pay monthly bills (electricity) or for grocery purchases. Besides, online shopping portals too have cash back offers on various products.

• Reward points: Credit card companies offer reward points for any purchases you make with your card. For example, HDFC Bank gives 2-5 reward points for every Rs 150 spent using your card. You can then use these points to purchase gifts (available on the company’s rewards page).

• EMIs: If you are making a big-ticket purchase (TV, refrigerator, laptop), you can easily convert it to affordable monthly instalments. Banks usually charge interest for conversion to EMIs.

• Grace period: One of the main advantages of using a credit card is you can defer your payments till your bill your due. Banks offer a maximum 50-day grace period for paying back your dues.

• Safety: Credit cards are safer than debit cards as in case of fraud you are not out of money immediately. Payment gateways like Visa, Mastercard also offer additional password protection while using the cards online.

What is the procedure for getting a credit card?

The easiest way to get a credit card is to apply with a bank where you already have an account.

Banks, other institutions that offer Credit Card Offers usually check certain parameters to check your debt repayment capabilities like your monthly income, credit score etc.
Applying for a card with a bank where you have an account can also help you get an enhanced credit limit as your income/spending grows.

Different banks/companies offer different offers on their credit cards, so check the promotions/discounts being offered. For example, if you want offers related to entertainment, you can opt for cards that give you discounts on movie tickets, plays etc. If you are the kind who dines out a lot, you can take a dining special card as an add-on. Some banks offer cash back offers on petrol, diesel purchases, while others give you better online discounts. So do your research before applying for a card.

Once you have done your research, you need to submit the valid documents (identity, address proof) to get that card.

Keep in mind to check the annual charges the bank is levying on the card. Usually, the annual charges are waived for the first year. Some banks also offer lifetime-free credit cards, but check to see if all charges are indeed being waived off.

How many credit cards should you have?

If you are already using a credit card, you might be tempted to go for more lured by the offers being given by credit card companies. But how many cards do you actually need?
Credit limit: If you feel that the credit limit on your existing credit card is not sufficient, then you may apply for one more card. But if you have a good payment history, credit card companies usually reward you by enhancing your credit limit periodically.

Convenience: Sometimes merchants don’t accept all cards, like some may accept only Visa and others only MasterCard. So if you have only one kind of card, you may not be able to make that payment using your credit card. Also, sometimes your card may get rejected for technical reasons. In such cases, a backup may be useful.

Benefits: Some cards offer privileges/good deals for specific purposes like petrol purchases, dining, air miles etc. If you want to take advantage of these offers, you make opt for a second card.

While credit cards offer convenience, multiple credit cards come with drawbacks too.
Credit history: It is difficult keeping track of payment dates of multiple cards. Non-payment of dues can affect you in multiple ways. For one, you will have to pay interest to the credit card company. Second, it can also affect your credit score and ability to get loans in the future.

Impulsive buyer: If you are an impulsive buyer, having multiple credit cards can make you spend without thinking about your repayment capability.

Multiple credit cards require you to be responsible and hence experts don’t recommend having more than two or three credit cards.

Source: http://www.business-standard.com/article/pf/what-are-the-benefits-of-using-a-credit-card-115073000580_1.html