Why is Credit Card Important? 6 Reasons to Use Credit Card

The use of Credit Cards is not a recent phenomenon at all. However, over the last few years, the perception of what is credit and why it is important has undergone a sea of change in India. There is increased financial awareness and changing consumption patterns, especially among young working professionals. As a result, Credit Cards have become hugely popular.Earlier, due to a lack of knowledge of the purpose of a Credit Card and a somewhat negative reputation associated with its usage, Indians tended to avoid the use of Credit Cards. But that is now something from the past.Today, people realise the importance of a Credit Card and the many perks and benefits associated with it, making it become an integral part of daily life now. In fact, for many, Credit Card spending has even become an important tool in financial planning.In this article, we will explore how to buy a Credit Card, what are the uses of Credit Cards, and why it is good to have a Credit Card.

Each bank offers a variety of Credit Card options based on different types of usage and requirements.The first step to getting a Credit Card issued in your name is choosing one that caters to your spending needs best. The next step is to apply for the Credit Card and fulfil the documentary requirements as prescribed by the relevant bank.When the bank approves your application for the Credit Card, you simply need to activate it, and it will be ready for use. Also Read: How To Get Best Credit Cards For Students?

Before you avail of a Credit Card, you must acquaint yourself with the purpose of Credit Cards to make the best use of the numerous benefits they offer. Some common uses of Credit Cards are:

Emergency funds

Credit Cards are the easiest source of funds when it comes to addressing an urgent financial need. Besides being an easy way to get instant credit, Credit Cards also make it easy to purchase big-budget items like home appliances, electronic gadgets, etc.The need for a particular item may arise when it is not exactly a favourable time financially, and this is where a Credit Card comes to the rescue. You can simply swipe your card to make a purchase and keep paying the amount in instalments at your convenience.There have been many instances wherein you may need more money than you have in your bank account. A Credit Card gets you access to this excess requirement of cash easily anywhere and at any time.

Safe and secure

When you have a Credit Card on you, it negates the unnecessary hassle of travelling with a huge sum of money.

Insurance coverage

With a Credit Card, you get access to personal accident coverage and comprehensive travel insurance coverage. The feature of insurance coverage is one of the most attractive aspects of owning a Credit Card.

Universally accepted

People who frequently travel are highly recommended to carry around a Credit Card because it minimises the need to carry around cash. It is accepted everywhere in the world for making payments, so you would not need to convert cash each time you travel from one country to another. However, it is important to remember that this could include additional charges that you must be aware of.

Builds credit history

When we list down the importance of a Credit Card, it is impossible not to mention the role it plays in helping the user build a positive credit history. When you want to apply for a loan, your credit history is important for determining whether or not a bank will approve your loan request. Using a Credit Card carefully can help you build good credit history.This is because your Credit Card payments significantly impact your credit score. When you make your Credit Card payments in a timely manner, it leads to an improvement in your credit score. It provides credibility to you as a responsible borrower in the eyes of the loan officer at the bank, who will eventually decide whether or not your application should be approved.

Offer perks and rewards

If you find yourself asking is it good to have a Credit Card, then you should know it definitely is when you consider the perks that come along with one. To make the use of Credit Cards a rewarding experience for users, banks offer a number of additional benefits to them.Based on your spending, Credit Cards let you collect points which you can later redeem. Banks offer a lot of gift cards, shopping vouchers etc., of many different popular brands that you can avail of in exchange for your Credit Card points. Also Read: Struggling With Credit Card Dues? These 5 Ways Can Bail Yourself Out

If used effectively, Credit Cards can prove to be beneficial for your financial life. However, if not used prudently, it can also cause debt and financial stress. Before you decide if it is good to have a Credit Card, let us look at some factors to shed more light on the final decision.

What are your spending habits like?

Before you get a Credit Card, you need to look at how you are going to use it. Are you going to pay your bills on time? If yes, then the interest rate will not matter much to you.However, if you wish to carry a Credit Card balance, opt for a card that offers the lowest possible interest rate on credit.If your Credit Card is going to be your companion for every single purchase, consider one that offers a high credit limit and a generous reward programme.If you are availing a card only to use in case of emergencies, then you should get a Credit Card with the lowest interest rates and fees.

The credit limit of the card

Credit limit is the amount of money the bank offers to lend you via your card. This amount is decided by the bank by reviewing your credit history. Maxing out your Credit Card will prove detrimental to your credit score and may also result in penalties.

The interest rate of the card

When choosing a Credit Card, the most important factor that you will need to keep in mind is the interest rate levied on it. If the card offers a fixed rate of interest, then it will be the same amount month on month. However, if it offers a variable rate, then it can keep fluctuating.

Penalties and fees associated with the card

Banks make money from issuing you a Credit Card. They levy special fees in instances when you make transfers, cash advances and other kinds of transactions. There also are penalties for not paying the bill on time or crossing your approved credit limit.

Incentives offered on your card

In order to promote more usage, banks offer a variety of incentives on Credit Cards. If you are going to use your Credit Card often, it is advisable to opt for one that offers a great rewards programme.Credit Cards also offer incentives such as restaurant vouchers, movie vouchers, air travel concessions, airport lounge access, etc.When looking to get a Credit Card, it is important to know the purpose of a Credit Card as far as you are concerned; you should consider what are the uses of Credit Cards and see if they meet your individual requirement. Only when you gain clarity on these issues can you decide if it is good to have a Credit Card for yourself or not. Also Read: What is Credit Score? Know How To Improve & Calculate?