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 all 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, a credit card can significantly strengthen your financial well-being. Here are a few advantages of a credit card and 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 your card issuer based on your credit score and your financial profile, including your income. Typically, you’re assigned a high credit limit that allows you to easily afford big-ticket purchases more easily as you get to repay the amount later and enjoy a grace period too.
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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 draw 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 your dues 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 your credit card balance?
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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. These may be flight tickets, hotel stays or electronics and lifestyle products. Most importantly, you also get exclusive deals, discounts, and cashback based on your credit card usage and your issuer’s partners. Credit cards such as the Bajaj Finserv RBL Bank SuperCard allows you to 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!
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While these are some of the advantages of a credit card, you must spend within your credit limit and income. If not, a credit card can have several disadvantages.
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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 high penal interest fee. This fee is added to your outstanding balance and grows as long as this balance remains unpaid. This can be disadvantageous for you because 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 charge 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, to benefit from them, credit cards demand diligent and responsible usage. This includes monitoring your spending 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 to deal with credit card fraud efficiently. The in-hand security feature and zero-fraud liability cover ensure that you are always protected. It allows you to control your credit card through an 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 to cater to your affordability. Another value-added feature of the SuperCard is that you can withdraw cash depending on your available credit limit from any ATM in India, whenever you want. This transaction is completely interest-free, provided you repay what you withdraw within 50 days. To experience all the benefits and more, check your credit card offer for a tailored credit card deal and enjoy instant approval.
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