10 Benefits Of Owning A Credit Card And How To Use One Wisely

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As a financial tool, credit cards are often misunderstood and underutilized. Many of us view credit cards simply as a way to make purchases, but they offer so much more than that. Responsible users stand to gain significantly from credit cards, provided they know how to tap into all of the offers and benefits that are up for grabs.

First, it is important to understand what credit cards are and how they work. Simply put, a credit card allows you to borrow money from a bank or credit card company to make purchases. In exchange, you’ll be required to pay interest on the money you borrow beyond a certain period, along with a processing fee or other charges.

Many of us are unaware of the various ways in which credit cards can improve our financial lives. From building a robust credit score to unlocking valuable travel benefits, credit cards can be a great tool for improving financial health and security.

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10 Benefits of Owning a Credit Card

Building your credit score with responsible credit card use

One of the main benefits of owning a credit card is the potential to improve your credit score. Your credit score is a number that indicates your creditworthiness, and it’s used by lenders to determine whether or not to approve loans you’ve applied for. Credit card companies report your credit activity to credit bureaus, which use this information to calculate your credit score.

For example, suppose you are a recent college graduate. You decide to apply for a credit card and use it to make small purchases, like books and stationery, each month. You make timely payments, keep your balance low, and do not apply for any more credit cards. All of this contributes to building a high credit score. After a year or so, you may be able to apply for a credit card with a higher limit and better rewards.

Earning rewards for your spending with credit card rewards programs

Credit card companies offer various rewards programs that allow you to earn perks, points or cash back for using your credit card. You may already be aware of a lot of these rewards tied to e-commerce websites, like Amazon or Flipkart.

No cost equated monthly installments (EMI) or points on cards from banks like HDFC, ICICI, Axis Bank and so on are popular examples. These rewards can be used for things like travel or shopping. But it is important to understand the terms of the rewards program on your card and use it strategically to get maximum value from your card. This can be a great way to save money or earn points on things you would have bought anyway.

Protecting against fraud

It’s easy to misplace a credit card or have it stolen. This is why most credit cards have measures in place to protect consumers against fraud. This means that you may not be held liable for fraudulent charges made on your card. In turn, they may monitor your account for suspicious activity, notify you of potential fraud, and reverse any such charges made on your card.

To be on the safe side, it’s important that you too monitor your credit card account regularly and report any suspicious activity immediately. If your card is lost or stolen, you can call the bank to block it or report the loss, and have it replaced quickly.

Enjoying peace of mind with credit card purchase protection and insurance

Many banks and credit card companies offer purchase protection and insurance on their cards. Purchase protection can reimburse you for certain scenarios – for example, the cost of damaged or stolen items purchased with your card.

Apart from purchase protection, cards also offer accidents and credit insurance. However, to utilize a card for these benefits, it is important to understand the terms and conditions of insurance and file a claim promptly if necessary.

Extending your warranty coverage

Some credit card benefits may not seem all that great, until the moment when you need them most. One such hidden perk is the extended warranty, which can save you from the stress of unexpected repairs or replacements.

Credit card companies often offer extended warranties on certain items, which can provide additional protection beyond the manufacturer’s warranty. This is simply an extension of the original warranty that comes with the product. However, it can prove to be a godsend in the case of high-priced purchases where a simple malfunction can result in a hefty repair or replacement cost.

For example, imagine your brand-new laptop breaks down within a few weeks of purchase. With an extended warranty, you could easily avoid the expensive repair or replacement costs and get going in no time!

Unlocking valuable travel benefits

If you are a frequent traveler, you’ll be happy to know that many credit cards offer travel benefits such as travel insurance, miles, airport lounge access, priority boarding, and concierge services, and discounts on hotels and flights. Travel credit cards are a great tool for frequent travelers or those who love to explore new destinations. With these cards, you can earn points for every rupee spent, which can be redeemed for free flights, hotel stays, and other travel-related expenses.

Getting emergency assistance when you need it

In cases of emergency, your credit card can serve as a useful tool to access assistance when it is needed most. For example, imagine you are traveling overseas and your wallet is stolen, leaving you stranded without any cash or credit cards.

Fortunately, you can call your card’s 24×7 customer service line for assistance. The customer service representative may be able to provide you with a temporary credit line and help you get a new card shipped to your location. With the right credit card, you can trot the globe worry-free.

Managing your budget more effectively

By using your credit card for everyday expenses and tracking your spending, you can gain a better understanding of your budget and how to manage it effectively. To use your credit card as a budgeting tool, it is important to keep track of your expenses and set a spending limit that aligns with your budget.

Let’s say you’re trying to cut back on your spending and want to track your expenses more closely. You decide to use your credit card to make all of your purchases for the month and then review your statement at the end of the month to see where your money went. You may realize that you’re spending too much on takeout or shopping and decide to cut back on those expenses for the next month. Leading banks even give a dashboard with the breakup of spend categories so that you can take charge of your spending habits.

Improving your cash flow

Whether you are a small business owner or you have some kind of a regular income, credit cards can improve your cash flow in multiple ways. For example, you can use your credit card to make purchases or pay bills when money is tight, and then pay off the balance when cash flow improves. Rewards can be used to offset some of your expenses. Additionally, some credit cards offer 0% introductory interest rates or balance transfer options, which can allow you to defer payments or pay off high-interest debt. .

Enjoying the convenience and flexibility

Credit cards offer the ultimate convenience and flexibility, allowing you to make purchases anytime, anywhere, without having to carry cash. They can be a lifesaver in case of emergency expenses, such as unexpected purchases or medical bills, when your account balance is low or cash payment is simply not an option.

Bottom Line

As we have seen, credit cards can offer many benefits beyond just making purchases. However, at the same time, it is crucial to remember that they also come with risks and downsides, such as high interest rates, hidden fees, and the potential to accumulate debt. Be wary of these fundamental mistakes: late or missing payments, using too much of your available credit or having too many credit cards.

Business users as well as individuals should also avoid carrying a balance that can lead to high-interest charges and debt at all costs. This can damage your credit score and lenders may interpret that you may be relying too heavily on credit and may not be able to repay your debts.

Even so, it is important to underscore that credit card users need to practice good financial habits, such as paying their outstanding on time and in full, avoiding unnecessary purchases, and using credit cards as a tool to achieve their financial goals. In this way, they can be a great way to build credit, earn rewards, and protect your purchases and finances.