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Are credit cards villains? Think again

By Rajiv Raj
Last updated on: October 28, 2015 18:39 IST
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Six compelling reasons to use your credit card. WARNING: reckless use of plastic can land you in a debt rap

Many a times, personal finance experts have told you that using your credit card can land you in trouble and you may end up with a bad CIBIL score. In case this has made you wary of credit cards that you avoid with a barge pole, we are here to dispel your fears. Here are the top reasons why you should use credit cards.

If you are only using your debit card or cash to make purchases because you think credit cards are villains disguised in plastic, you couldn’t be further away from the truth! While it is true that reckless use of your credit cards will lead to a debt trap and bring down your CIBIL score, using your credit card responsibly has many benefits. Take a look at the best reasons to use your credit card.

Universal acceptance

When you are travelling, it is much easier to use your credit card because of its universal acceptance as compared to your debit card or even cash. Especially if you are in a foreign country and trying to book a hotel or rent a car, you credit card will be your biggest aid. Needless to say in such situations, you debit card that you use domestically will be of no use and it’s certainly not safe to move around in a foreign country with hard cash.

Get a grace period to repay your dues

The best thing about using a credit card is that you do not have to pay cash for any purchase instantly. If you make a habit of paying the entire amount you spend on your credit card within the specified time frame, you can not only hold on to the cash on your savings account, you can access credit at your convenience at no extra cost. The good thing about a credit card is that apart from the billing cycle you are given a grace period or the time you get to pay the outstanding balance without paying an extra fee.

This grace period is a time frame of 15-20 days depending upon the card issuer.

If you are able to use the billing cycle and the grace period judiciously to pay off all your outstanding dues on your credit card, you will end up with a good CIBIL score as well, for optimum use of credit.

In fact if you are trying to build a good credit history, there is no better way to do it than the proper use of your credit card.

Save up on air travel

A debit card is an extension of you savings account and often does not come loaded with as many benefits as a credit card. However, if you have a CIBIL score of 750 and above, you could opt for a credit card that offers a sign up bonus that can be pretty significant.

For instance, if you are a frequent air traveller you can opt for a co-branded credit card with a particular airline that you are a regular with. That gives you a sign up bonus of a good number of travel miles that will save you a lot of money on your air travel. With the right cards you may end up getting a free flight or two in a month, owing to your sign up bonus and the other points you garner while you travel.

Other cards offer points that can be redeemed for gift cards or other freebies.

Good cash back schemes

If you are an e-commerce enthusiast and make most of your purchases online, you can be rewarded majorly with the right kind of credit card. E-commerce portals have standing tie-ups with the major banks which offer anything between 1-5 per cent cash back on most purchases. You can thus save up quite substantially when you are shopping online.

Stock up on reward points

All credit cards offer reward points on each spend. These reward points are the best way to get more from your credit card. If you cannot think of ways of redeem these points immediately, there is no problem with that. You can keep stocking them up for some amazing rewards later such as hefty discounts on flight tickets or hotel bookings when you are on a vacation.

No shortage of personal funds in case of a fraud

While online banking is rampant these days, cases of phishing or online frauds are not uncommon. When you use a credit card, there are better chances of safety against a potential fraud as compared to a debit card. When a debit card is used illegitimately, the money is debited from your account immediately. Till such time you realise there has been a fraud, the money from your account has already gone and the process to notify your bank and do the needful for the investigation to take place takes a good amount of time.

As a result, it also takes a while for the money to be restored to your bank account. On the other hand, if your credit card falls into the wrong hands and there is a fraudulent transaction in your name, you get a notification and you inform the card issuer immediately. Although the investigation process remains pretty much the same, you do not fall short of your personal funds and it is up to the credit card company to reverse the transaction.

However, you must know that all of these reasons are applicable on the credit card, if and only if you have control on your spending habits and make it a point to make the payments in full in each and every billing cycle.

Reckless use of your credit card may land you not only in neck deep debt but with a poor CIBIL score that may not give you access to credit later.

Photograph: istolethetv/Creative Commons

So use your credit card responsibly and enjoy the many benefits it has to offer!

The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.

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Rajiv Raj