With the world of finance moving towards digitisation, long gone are the days when all the payments had to be made with cash. The use of plastic money like credit card has become a part of everyday life. So, let’s discuss a few advantages and disadvantages of credit cards.
Advantages of Credit Cards
1. Purchasing Power
Credit cards allow the buyers to use the card for the purchases and pay for the same later. You do not need to worry about having enough cash in their account as at the time of payment the money is not going out from your account. Hence, it eases the worry of denting the account balance
2. Building a Credit History
Credit cards help you build a credit history which helps your credit score. Timely payment of the credit card balance increases your credit score. Banks and financial companies check your credit history and your repayment habit before lending you a loan. A good credit score improves the chances of loan approval.
3. Purchase Protection
Many credit card companies give their buyer insurance in case their purchase that has been made through the credit card is lost or stolen. Other types of coverage like air accident insurance, overseas medical emergency insurance, lost card liability cover, etc. are also offered.
4. Record Keeping
Credit can help you keep the track record of your spending habits. Every month a statement is sent to you to check your spending. It can also help you analyze where to limit your expenditure. Some companies also send you yearend summaries which help do taxes.
Disadvantages of Credit Cards
1. Overspending
Most often buyers can go overboard with their spending and can land in massive debt at the end of the month without even realising it.
2. Hidden Charges
No matter how many facilities and offers your credit card provides, there will always be hidden costs like cash advance fees and late payment fees that a lot of credit card customers do not know about.
3. High-interest Rates
If you fail to make your credit card payment on time, then the balance is carried over to another month and interest is charged on the outstanding balance. After your interest-free period is over, the bank can charge up to 3% for your outstanding payment.
4. Chances of Fraud
Just like your money, your credit card details can be stolen. It is also possible for you not realise that such fraudulent activity has taken place till you check your monthly statement. In case your credit card has been stolen, you can call your credit card company and ask them to block the card. If you find that the card has been stolen much later, the credit card companies charge you a minimum amount before deactivating the card.
There is a good part and a bad part to almost everything. Though credit cards come with certain fees and charges, they can go a long way in building your credit score if used wisely.