Advantages and Disadvantages of credit card : All you need to know

A credit card allows you to enjoy credit for buying goods and services. It also gives you reward points and exciting offers. Ithas become a useful financial tool in today’s time. However, like every coin has two sides, so does a credit card. Read through to learn about the benefits and shortcomings of credit cards.

The Advantages of Credit Cards

• A quick source of funds: credit cards function on a deferred payment basis, which means ‘borrow now and pay later’. Customers who have bank accounts are served with this one-of-a-kind feature. The customers use funds as often as needed (within the limit) to make necessary purchases.
• Easy access to EMIs: If a customer wants to make big and expensive purchases but do not have enough cash or bank balance, a credit card has them covered. They can make these purchases with easy and affordable EMIs (Easy Monthly Installments). The total billed amount is converted into small monthly instalments.
• Financial credibility: Every time a customer purchases with a credit card, a transaction history gets created. Banks and financial institutions use this transaction history to analyse their line of credit and credit repayments. Moreover, this line of credit builds their creditworthiness for future loans or rental applications.
• Security: A credit card is a safe tool. Unlike old credit cards, the ones issued recently have Europay, MasterCard, and Visa chips embedded in them, making them safe to use and preventing fraud.
• Credit score improvement: Making timely credit repayments upgrades a customer’s credit score from bad to good. This shows that they have good borrowing and repaying habits.
• Rewards and Offers: Most credit cards come with cashback or reward points every time a customer swipes their card. These reward points are then redeemed and used towards paying their outstanding credit card dues. Sometimes, these can also be used when booking tickets or travel destinations.

The Disadvantages of Credit Cards

• Overuse: The credit card provides you with funds to a large extent, which attracts the user to overuse the credit. Because of this, a consumer makes every purchase with a credit card and later may fall into a debt trap. So, it’s recommended to spend 50–60% of the total credit to solve this. This will prevent the overuse of credit and prevent the customer from falling into debt.
• Fraudulent acts: Credit cardsare safe to use, but there are still chances of fraudulence. These frauds include fraudsters stealing credit card credentials and making wrong use of them or when a transaction is done through someone else using another user’s credit card. Moreover, inform your bank immediately if you find any suspicious activity related to your card.
• High-Interests: If a customer doesn’t pay their dues on time, the banks carry this amount forward and apply interest rates on it, and they fall into a debt trap. To avoid such a situation, repaying on time and avoiding high-interest rates is advisable.
• Additional Costs: Some hidden taxes or fees are associated with credit cards. Not making payments or recurring outstanding payments may reduce credit scores eventually. Therefore, make timely payments and don’t ignore additional costs like annual fees, renewal fees, etc. 
• Minimum due amount: This minimum due amount is written at the top of the monthly bill of a credit card.This is thebiggest shortcoming of credit cards. Many credit cardholders, especially new ones, confuse the “minimum amount due” with the “total amount payable” and make partial payments, increasing their outstanding balance and locking them into high-interest rates. To avoid such conditions, read the credit card bill thoroughly.

The Top Five Fuel Credit Cards

The price of fuel keeps changing in the market. So a customer may save money by making their fuel payments through the best credit cards for fuel in the market. SBI Bank, HDFC Bank, and Citibank offer the best fuel credit cards. The frequently used credit cards for fuel, their annual fees, rewards offered, and surcharge waivers are as:

Summing up

In today’s fast-growing world, a consumer must act smart and make smarter choices. What’s better than a credit card that says ‘borrow now, pay later? However, before applying for a credit card, read about its advantages and disadvantages, and choose the right one. To get more information on credit cards and personal loans, visit Piramal Finance.