Benefits of credit cards: The bright side of the plastic card

We cannot neglect the benefits of credit cards. The popularity of this plastic card is increasing across the globe. For example, in the USA, the number of VISA credit card (one of the biggest credit card networks in the world) was around 345 million by the end of March 2020. For your kind information, the current population of the USA is approximately 331 million. It means each people possess a credit card irrespective of their age and income level.

After demonetization (8th November 2016), India has seen a spike in debit and credit card users. For instance, according to the Reserve bank of India, more than 50 million credit cards are in operation by the end of July 2019. 

The report also indicates a growing interest for credit cards than debit cards. Though the number of credit cards looks smaller when we compare it with India’s population (around 1.38 billion), it is growing faster.

Therefore, we decided to cover the benefits of credit cards in this lesson to look into the driving force behind it. However, you can also look at the darker side of the credit cards in our previous post.

The benefits of credit cards

Every object in this universe, be it natural or human-made, comes with a benefit. However, it depends on the person behind the thing for its proper or improper use.

IT COMES WITH A GRACE PERIOD

Credit cards come with a grace period of 20-60 days. It means you get an interest free loan for 20-60 days. It is a period between the end of your billing cycle (28-31 days) and the due date.

Let’s take an example, suppose your billing cycle starts on 1st May 2020 and ends on or before 31st May 2020. Then, your monthly statement includes the purchases you made during the period.

Note: Your credit card issuer adds any purchase you make after 31st May 2020 to your next billing cycle.

However, you will get a grace period of 20-60 days (depends on the card issuer) to clear your bills. That means you pay your credit card bills on or before 20th June (assuming a grace period of 20 days). The end of the grace period is called the due date. Hence, 20th June is your due date in this case.

On the due date, you have two options: to pay the full amount or pay the minimum balance amount. Once you cleared the bill by the due date, it will not incur any interest. That is one of the most significant benefits of credit cards.

However, if you did not pay the full amount or cleared the bill, you will be charged a monthly interest of 3% or more. You will not get any grace period, and any further purchases in the next billing cycle will also incur the same interest rate.

IT PROVIDES YOU SAFETY AGAINST FRAUDULENCE

Online card fraudulence cases are increasing each day. You make an online transaction using your card, fraudsters theft your data, and exhaust your balance. In debit card fraudulent transactions, your money vanishes from your savings account, and it is nearly impossible to get it back. However, this is not the case with credit cards. There is a safety net to protect you against such fraudulent activities.

You can have peace of mind to know that your bank will not make you liable for those unauthorized transactions. You are protected against any fraudulent transaction, be it at POS machines, over the telephone or mobile, online, or even ATM. However, you just have to ensure that you have taken care of the card and promptly informed them.

Major credit card networks like VISA and Mastercard have ‘zero liability protection’ that enables you not to pay for the transactions that you did not make. Your credit card issuer will resolve the matter and issue you a new credit card. For me, this is again one of the most significant benefits of credit cards.

IT COMES WITH PURCHASE PROTECTION

Credit card networks like VISA, Mastercard, or American Express come with a feature called ‘purchase protection.’ It protects the items purchased using the credit card.

There are two significant protections they provide. That is ‘theft’ and ‘accidental damage.’ For example, you bought a mobile using your credit card. You accidentally damaged your screen. Then you can get reimbursement under the purchase protection feature. However, there are claim limits. For that, you have to check the terms and conditions of your credit card issuer.

Similarly, if your laptop is stolen that you have bought using your credit card, then also you will be covered under the purchase protection feature and get reimbursements. However, they may require some documents, including an FIR (First Information Report).

In other cases, they also cover services. For example, you repaired your car but are not satisfied with their service. However, you have paid their service charges using your credit card. Then, you need not have to be worried. The credit card company will settle the issue.

Note: You should check the terms and conditions to know the monetary and time limitations, the paper works, and the exclusions. It varies with card networks and types of cards.

IT COMES WITH INSURANCE COVERS

Credit card companies provide you with some attractive insurance covers, including ‘credit insurance,’ ‘personal accidental insurance,’ and ‘lost baggage insurance.’

For example, credit insurance provides a waiver of premiums on the outstanding dues up to Rs 50,000 in case of the accidental death of the cardholder. However, it varies from one card network to another.

Similarly, under the personal accidental insurance, the cardholder gets insurance covers ranging from 2 Lakhs to 40 Lakhs depending upon the card types and type of accident. For example, there is a higher amount of coverage for air accidents than road accidents.

In addition to the above insurance covers, credit card companies also provide you ‘lost baggage insurance’ where you are eligible to get up to $ 1200 for your checked baggage in the event of theft or total loss. It applies to both domestic as well as international flights.

Note: You should check the terms and conditions provided by your card company to know more about it.

IT HELPS TO INCREASE YOUR CIBIL SCORE

CIBIL score is a three-digit number that helps you for faster loan approvals and a lower interest rate for your credit. A number close to 900 is considered as good. 

With the proper use of credit cards, it becomes easy for you to increase your CIBIL score or maintain it. Once you build a habit of paying your credit card dues on time, your card issuer increases the card limit. It helps to keep your credit utilization ratio low.

Note: The credit utilization ratio is nothing but the percentage of your expenses over your limits. For example, suppose your credit card limit is 50 thousand rupees, and you make a transaction worth 25 thousand rupees. That means your credit utilization ratio is 50%.

However, if your credit utilization ratio is below 20-30% and clear credit card dues on or before the due date, your CIBIL score will increase. That will help you when you take a big-ticket loan like a home loan on a future date.

IT HELPS TO RECORD YOUR EXPENSES EASILY

At the end of each credit cycle, you will get a monthly statement in your mailbox. It shows each transaction you have made during the credit cycle. Therefore, it helps you to track your expenses easily.

Budgeting is one of the most critical factors in personal finance. It helps you to track your previous expenses and plan for the next. Further, with credit card monthly statements, it becomes super easy.

If you use your credit card to make your daily purchases, you need not manually make entries. It takes care of it. However, it depends on you to analyze your expenses and make a budget that your credit card cannot do.

IT IS ACCEPTED WORLDWIDE

If you possess a credit card with a VISA or Mastercard logo, you need not worry about payments during your world tour. For your kind information, VISA has 44 million merchant locations in more than 200 countries. Similarily, Mastercard has 37 million merchant locations in more than 210 countries. You will get a complete list of your credit card coverage on your credit card company’s website.

However, you may have to pay a foreign transaction fee of around 3% of your transacted amount. But, there are a few types of credit cards that do not charge the fee.

Debit cards are not accepted worldwide. It is also not the safest option as your entire bank balance is at risk. Once you lose your money due to fraudulent activity, it becomes nearly impossible to get it back. Thus, it is again one of the safest benefits of using credit cards.

IT TAKES CARE OF FOR RECURRING PAYMENTS AND ONLINE PURCHASES OVERSEAS

Sometimes, you need to pay regularly for availing online services, e.g., hosting, security renewals, or other subscriptions. Your credit card takes care of those payments. Similarly, you need to pay for some services in dollars or foreign currency. It makes things simple with a credit card. You just have to enter the details of your credit card, and it’s done.

Further, you can take advantage of tons of services that offer you a 15-30 day trial offers. This way, you can save a few bucks. For example, if a company charges you $ 180 annually, and give you a 30 day trial period. Then, you saved around $ 15.

Moreover, it gives you time to check its service before you decide to purchase it. These are some of the excellent benefits of having credit cards.

OTHER BENEFITS OF CREDIT CARDS

Most people are not aware of an emergency fund. However, emergencies can happen anytime. And it becomes difficult to arrange money in a short period. But, credit cards come to your rescue during those critical times. You can pay the bills and not worry about the repayment up to the due date.

In addition to that, you get a lot of freebies, cash-backs, and reward points with credit cards. It can be helpful if you use them properly. For example, most of the time, your company reimburses your expenses. Therefore, if you meet those expenses using your credit card, you will get cash-backs, reward points, or other freebies are additional benefits.

A closing thought on the benefits of credit cards

For me, a credit card is like a Nunchaku, the favorite martial art weapon of Bruce Lee. Once you master it, you can protect yourself from your enemies and even kill them. However, novices will get injured easily. It is not a piece of cake for everyone. Likewise, credit cards are not for those who don’t have control over their expenses or are emotional about money. It is for those cold-hearted people who know what they are doing and have mastery over money.

Therefore, you should not get tempted to acquire a credit card or feel privileged when receiving a credit card company call. If you possess the above qualities I mentioned in the previous paragraph, there is nothing to get late.

If you find this article useful, then don’t hesitate to share it with your loved ones. Further, I need your comments, suggestions, next episode ideas to create value in your life.

Thanks and regards,

finguru@finlessons.com

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