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All you need to know about the advantages and disadvantages of a credit card

  • Highlights

  • Credit cards significantly boost your spending power

  • Responsible use of credit cards builds credit history

  • The SuperCard fetches you rewards, cashback, discounts

  • Get access to ATM withdrawals and loans with the SuperCard

Credit cards have revamped the way you purchase as they allow you to pay for goods and services conveniently, quickly and risk-free. Whether you have an international credit card, a secured credit card, a student credit card, or a cashback credit card, they offer incredible deals and exclusive perks that help you save more with every swipe. However, it is important to remember that a credit card is still a credit instrument, which means you have an obligation towards it. This includes paying your bills on time and maintaining a healthy credit utilisation ratio. Just like any other financial tool, when used well, a credit card can significantly bolster your financial well-being. Here are a few advantages of a credit card as well as some of its important drawbacks.

Boosts your spending power

It is important to know that a credit card functions based on your credit limit. This limit is assigned to you by issuers based on your credit score and your financial profile, including your income. Typically, you’re assigned a high credit limit that allows you to afford big-ticket purchases more easily as you get to repay the amount later and enjoy a grace period too.

Additional Read: How to apply for Credit Card in 3 steps

Helps build your credit score

Since it involves a credit limit, a credit card helps you build your credit history. Your credit card number is linked to your name and when you repay the bills in full and on time, your credit score increases. This helps you access loans more easily in the future. A credit card is a good way to build your credit history as you can get one easily. Most importantly, unlike a loan, your credit card bills are restricted to your credit limit, which means you cannot overspend. When you pay off what you have spent regularly, you don’t pay any interest on your transactions. This allows you to build your credit score easily over time.

Additional Read: How to check credit card balance

Offers you money-saving rewards and benefits

The reward point system on credit cards is a unique advantage that you can benefit from. Through this system, you earn points for spending or reaching spending milestones and these points can then be redeemed for merchandise available on the merchant website. This may be flight tickets and hotel stays or electronics and lifestyle products. Most importantly, you also get access to exclusive deals, discounts, and cashback basis your credit card usage and your issuer’s partners. Credit cards such as the Bajaj Finserv RBL Bank SuperCard enable you save up to Rs.55,000 annually via an exclusive reward point policy. Moreover, you can earn a welcome reward of up to 20,000 points just by signing up for a SuperCard!

While these are some of the advantages a credit card, you must spend within your credit limit and income. If not, a credit card can have several disadvantages.

Additional Read: What is CVV?

High penal interest fees

Typically, credit card interest rates are much higher than other forms of credit on an annual basis. This is especially evident when you default on payments as some issuers charge you a hefty penal interest fee. This fee is added to your outstanding balance and grows as long as this balance remains unpaid. This can prove disadvantageous for you, as even if your initial default amount is small, the amount it finally leads to with the addition of interest may be a hefty sum.

Hefty annual fees

In addition to the high credit card interest rates, certain variants of credit cards also carry a hefty annual fee. This is generally applied to cards that offer greater benefits and exclusive perks. It is also important to know that credits cards also carry a processing fee for certain transactions. Keep this percentage in mind as it can cost you a significant amount if it occurs frequently.

Additional Read: Reduce your Credit Card Interest

As you can tell, the pros of a credit card outweigh the cons. However, in order to benefit from them, credit cards demand diligent and responsible usage. This includes monitoring your spends and being careful about where you use your card. To truly minimise any risk, opt for an issuer that prioritises your experience. For example, the Bajaj Finserv RBL Bank SuperCard has security measures in place to deal with credit card fraud efficiently. The in-hand security feature and zero-fraud liability cover ensures that you are always protected. It allows you to control your credit card through a credit card app on your smartphone and lets you disable it in an instant.

Additionally, the SuperCard charges nominal fees and gives you a substantial grace period so as to cater to your affordability. Another value-added feature of the SuperCard is that you can withdraw cash basis your available credit limit from any ATM in India whenever you want. This transaction is completely interest-free, provided you repay what you withdraw in 3 EMIs 50 days. To experience all the benefits and more, check your pre-approved credit card offer for a tailored credit card deal and enjoy instant approval.

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