Pros & Cons of Having a Credit Card

A credit card is a form of plastic money available to people who earn a substantial amount of it. It is a type of temporary loan from a bank which they readily provide at high-interest rates to individuals who pay it back at the end of every month. You can use it for bank transfers and withdrawal of cash from an ATM. Credit cards are universally accepted for all things considering money. The company sends a receipt, of sorts, to the owner at the end of every month and the following are present on the monthly credit statement, which is:

  1. Minimum amount to be paid
  2. The last date by which the company must receive the minimum payment.

If the amount is not paid every month, the balance amount incurs interest. These interests and other conditions differ from each bank, and thus the following points are of prime importance when you think you should get a credit card.

Credit Card

Pros of using credit cards:

  1. Building credit: Credit cards, if used rightly, can help in building credit. Using credit corresponds to building credit. If your credit score is good, you can get lower interest rates on mortgages, credit cards, and auto loans.
  2. Earning rewards: Credit cards have infinite possibilities of providing cash back or points for shopping for items on a daily basis. There are sign up bonuses up for grabs if you meet a certain spending limit within a specified period of time. For example, a generic credit card will give you 1.5 percent cash back for all purchases at a nominal annual fee.
  3. Fraud protection: In many instances, credit card companies have restrictions to help in protecting you and your purchases from credit card fraud. If you have ever lost your card, you must instantly report it stolen. Under the Fair Credit Billing Act, liabilities for purchases that are unauthorized are restricted at a low amount. If the lost card is reported stolen or lost before any transactions are completed, the owner will not be responsible for any unauthorized charges. If the credit card number is stolen but not the actual card, the owner will still not be liable for any charges levied without authority. Debit cards also offer such protection but their magnitude is reduced on multiple levels. Thus, credit cards offer much stricter fraud protection when compared with debit cards.
  4. No need to carry cash: Using the credit card is much more convenient for customers since it can help in transacting large sums of money without the risk of physically carrying the amount in liquid form. They are accepted in all retail stores. If you lose your card, you will not be held responsible, because the company will replace it soon after you apply for a new one.
  5. Expense tracking: Every month a detailed report arrives on your doorstep intimating you about each and every transaction. This helps in determining the amount of money you should start saving and the extra expenses that encroach over every month. This method is efficient and devoid of human error.

Expense Tracking

Cons of using credit cards:

  1. Potential to overspend: Credit cards offer you money that you presently do not have in your pockets yet. Thus it is a loan from the credit card companies and you may get into debts if you start considering it your own money. So if you have made up your mind to apply for a credit card, make sure that you keep tabs on your expenditure and spend money that you can recover later. Staying within your means is the best possible way to avoid massive debts.
  2. Can incur debts: Overspending using a debit card is the most common way of ensuring a wave of debt and that is a situation you must try to avoid. A simple method to prevent such a scenario is to create a monthly budget within the billing period and also check the points of expenditure at regular intervals. This will help in reducing the amount of money spent and also keep a check on further expenses.
  3. Confusing fine print: Reading the conditions and terms can be a pain especially because the documents are extensive and very confusing. They use tactical words to outsmart the consumer. Some important details are formatted in a nutshell but are far from the intricate details one should go through before taking the plunge. For some people, these conditions and terms may become intimidating and can push them away from applying for a credit card, but there are third-party companies that can help you go through the documents before committing to a company.
  4. Credit scores can be affected: Credit scores can take a toll if you use the credit card without caution. This can reduce your chances of getting lower rates of interest on mortgages, personal loans, and auto loans. The banks can even deny any future loans if your credit score is really low. Some instances that can hurt your credit score are:
    • Late payment of bills
    • Not paying bills at all
    • Using the available credit without bounds

There are a variety of factors that are considered while calculating credit scores but certain conditions are directly linked with it.

Setting auto pay for the minimum amount of money to be paid every month can be very rewarding and will take the load of manually doing the task every month. This is particularly advantageous because you cannot miss the payment and also keeps a tab on your monthly expenditure. An overdraft fee is so much higher than the interest rates and can put you in worse situations than before.

Credit Cards

Everything can be translated to either black or white but you can never let go of the grey areas. Credit cards have a lot of such white and black areas along with certain grey ones. It is totally up to you to figure out your needs and whether your financial situation is fit for applying for a credit card or not.

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Saurabh Saha
Pursuing MCA from the University of Delhi, Saurabh Saha is an experienced blogger and internet marketer. Through his popular technology blogs: TechGYD.COM & sguru.net, he is helping several brands to gain exposure in front of high-quality web visitors.