What are the advantages and disadvantages of using credit cards? : The best advantages and disadvantages of having a credit card are mentioned here. Many people love credit cards while some people hate credit cards. It depends on the needs of a person. Credit card is an another tool which will help you to make purchases and more. A credit card will help you in making a good credit score or history, it will give you reward points, you can also use it in any currency. There are various benefits of using credit card. But every thing in this world has its pros and cons. So does credit card has. So you can have a glance over this article. This article will help you in knowing the benefits and risks of using a credit card.
5 Advantages of using a credit card
The top advantages of having a credit card are mentioned below:
1. Convenient and safe online shopping
You can safely use credit card for online shopping. Credit cards are not only useful for offline shopping but also convenient for online shopping. Banks now provides all the safety and protection for the credit cards so no fraud or duplicity can happen. Moreover, some websites asks permission for saving your card data, if you have trust or it is a reputative website you can save the data over there.
But prefer not to save on the website which you are using it for the first time. Sometimes we forget to carry our debit card, so we can use credit cards for the shopping purpose too. And it is safer and easy to use credit card to travel somewhere.
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2. Less cash to carry on hand
When you have your credit card with you, there is no need to carry cash with you because there are several ATM machines in every place. So you can withdraw cash from there. There is nothing to worry if you don’t have cash with you. But if you have credit card with you, you can go to the ATM and can withdraw easily.
But many people have confusion that can they withdraw cash from the ATM machine. And the answer to this confusion yes. But the cash withdrawn through credit card is a cash advance which is a small loan.
3. Works everywhere
Credit cards works everywhere, you can use it in any country, state or in any city. Credit cards works in every currency. You can withdraw cash from the ATM machines in abroad but you will be charged a conversion fee. But it is important to carry foreign currency on hand, if you are travelling abroad for some small emergencies or for any other cost.
Not all debit cards are universally accepted, so it is better to carry credit cards while travelling. And it is a good idea to carry some cash in hand and also with some additional sources like cards. If you are using credit cards overseas, you should check whether it is provided by Mastercard, Visa or any other provider. Also take a look at the fees charged.
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4. It builds your credit score
If you pay off your expenses and balances every month, then it is beneficial for you to improve your credit rating as well credit score. Keeping a track of your credit score is beneficial if you are going to get a car loan or any type of loan. Your credit score will help you in paying the amount of loan. A good credit score means that you have money in your pocket after taking the loan.
Your credit scores determines more than the amount of loan you get and the interest rates you pay. To grow your credit score, pay your bills on time and use your credit accounts on a regular basis. And do not apply for any new credit. First, end up with your earlier expenses or balance and then try for taking a new credit.
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5. Reward points
There are many banks who offers reward points when you use credit cards for withdrawing any transaction. These points can be regain in the form of gifts, vouchers, coupons, freebies etc. This encourage customers to use their credit cards for payments in hotels, bill payments, shopping, travel etc.
And in return, customers can redeem the reward points and can enjoy the gifts, voucher or anything that the bank offers to them. Reward points are just the perks offered by many banks to the customers to encourage them to use credit cards. And there is no way to earn your money back.
5 Disadvantages of using a credit card
The top disadvantages of having a credit card are mentioned below:
1. High Interest Rates and Debt
You need to pay off the interest on the balance that you don’t pay at the end of the month. Through charging interest rates from the customers, banks earn money. And this how many people get into debt and bankruptcy. A proper record is maintained by the bank about your credit report. It depends upon your savings.
The interest is charged on credit cards only when you have not paid the outstanding amount or have withdrawn cash from the ATM machine through credit card. Interest rate ranging from 1.5% to 2.98% is considered as the lowest interest rate for credit cards.
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Though many banks provide fraud security and protection but sometimes people get in contact with the fake people and start sharing their bank details to them, considering them as a bank agent. And becomes a victim of fraudulent. Credit cards can be stolen and can also steal your card number.
You should never disclose your card number when you are in unknown place. You should keep your credit card as well debit card in a safe place. Be aware of your surroundings and do check the ATM machines while withdrawing the cash.
3. Cash advance fees
Cash advance fees is the small amount of loan. When you withdraw cash from credit card, the amount is called “cash advance“. The amount of your cash advance depends upon the outstanding amount on your credit balance. The only way to avoid cash advance fees is to avoid your cash advances on your credit card.
Cash advance fee has typically higher interest rate. As soon as the transaction is completed that is your time period for paying the outstanding amount ends, the interest begins accruing on the balance amount.
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4. Difficulty in getting loans in future
When you already have outstanding balance on your credit card, it will become difficult to take loans in future. The bank will not be able to grant you loan. Do not go for new credit once you are done pending with the earlier amount. Also try not opening new credit card account, your credit standing will take a short term hit.
So it’s better not to open a credit card account before you need to apply for loan like home loan, car loan, education loan etc.
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5. Reduction in future income
Every time you use credit card, there is reduction in your future income. As you have to pay back the amount you withdraw and that amount will be reduced from your income. A portion of your future income will be spend on repaying the outstanding amount of your credit card.
You may use credit card but use it up to some extent that you can pay at the given time period. A misuse of credit card will ruin your credit score and that will be a huge loss for you.
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