The invention of credit cards has changed the way people spend money over the years. According to statistics, there are more than 40 million active credit card users in India. The credit card has become a valuable financial tool that offers rewards, protection, and convenience. It can be used to buy groceries, clothing, and accessories, book a movie ticket, shop online, purchase appliances, and many more.
Almost all banks and financial institutions offer different types of credit cards, these make many people believe owning this card is a trap. But, this is not necessarily true. The implications of a credit card depend upon its owner. It also depends on why the credit card is used and how its payment is made each month. Therefore, it is important for credit card users to learn how to use them sensibly and responsibly. Let us examine how to use a credit card and some of the top benefits of using it.
What does a credit card mean?
Credit cards are thin rectangular cards issued by a bank or financial services company to card owners for borrowing funds within a pre-approved credit limit. It imposes the condition that holders pay back the borrowed money with applicable interest and other additional agreed charges. These can be done either in full by the billing date or over time. Credit cards often have limits, which are determined based on many factors such as income, credit score, and many more.
What are the ways to use a credit card?
Credit cards are a type of short-term loan. But, instead of receiving money beforehand, your credit card company gives you a set credit limit. This limit refers to the amount that can be spent before you start paying back a specified amount to the company at the end of the month.
When you use a credit card, your card details are sent to the financial institution or bank. They then verify your information and either approve or decline the transaction. The payment is processed if the transaction is approved. Here are ways to use your credit card:
File for the right card
Before opting for a credit card, you must identify the card category you should collect. Your decision should be based on your spending habits and patterns. It is also important to do thorough research about the company and its credit card. These include terms and conditions, card features, reward points, discounts offered, and other additional benefits.
Know the charges
Many credit card issuers often charge numerous fees. These include annual fees, foreign transaction fees, balance transfer fees, cash advance fees, late payment fees, returned payment fees, etc. These help you weigh your options and choose the card that best suits your needs.
Be consistent with your payment
The best way to use a credit card is to ensure you make payments on or before the due date every month. Paying your bills on time improves your credit score. While late or missing payments severely damage it.
The benefits of using a credit card
Faster payment is one of the best advantages of using a credit card. The card allows you to make instant purchases and pay later. It also provides an interest-free credit period which often ranges between 20 to 55 days, depending on the terms and conditions of your credit card.
Builds credit score
Credit cards build a good credit history and improve your credit score. When you repay your credit card bills on time, your credit card issuer gives your information to credit information companies like CIBIL and Equifax. These companies adjust your credit score according to your payment history. These make it easier for you to access other credit facilities later if you need to.
Accessible during emergency
Credit cards are also a great asset during emergency cash for urgent bills. They can be used to withdraw cash from ATMs or as a payment method.
Frequent cashback bonuses
Credit cards also have many benefits for constant shoppers. A percentage of the amount you spent is often returned to you as cashback. Most shopping credit cards also offer discounts on various products and services. These discounts help spend less on your preferred products and services. Also, some credit cards offer additional reward points when you shop beyond a particular threshold limit.
Some banks and financial institutions provide credit cards that allow you to convert your shopping costs into no-cost EMIs. These help you repay the shopping cost conveniently over a tenure of your choice without no added interest.
The bottom line
Knowing how to use your credit card can help you to use it to your advantage. You also have the benefits of using the cashback credit card features. However, you must identify your spending habits and get a card that complements it to make the most of your credit cards.