Best Knowledge on Credit Card
Credit card (CC) is an essential part of modern society, providing consumers with a convenient and flexible way to access credit. However, they can also be a double-edged sword, as misuse can lead to financial difficulties and debt. In this article, we will explore credit cards in detail, including their benefits and disadvantages, why they are used, and key precautions to keep in mind when using them.
What are Credit Cards?
Credit cards are payment cards that allow the cardholder to make purchases on credit, up to a predetermined limit. They are issued by banks, financial institutions, and other credit card companies, and are usually linked to a revolving credit account. The card holder can use the card to make purchases, which are then charged to the account. The cardholder must then make payments on the account, either in full or in part, at regular intervals.
Why are Credit Cards Used?
CCs are used for a variety of reasons, including convenience, rewards, and emergency situations. They allow consumers to make purchases without carrying cash, which can be safer and more convenient. Additionally, These cards often come with rewards programs, such as cashback, airline miles, or hotel points, which can provide additional benefits to the cardholder. Finally, CCs can be used in emergency situations, such as unexpected car repairs or medical bills, when cash may not be readily available.
Benefits of Credit Cards
1. Convenience: These cards are incredibly convenient and easy to use, making them ideal for everyday purchases.
2. Rewards: Many of these cards come with rewards programs that offer cashback, airline miles, or hotel points, which can be used for future purchases or travel.
3. Fraud Protection: These cards offer fraud protection, meaning that the cardholder is not responsible for fraudulent purchases made on their account.
4. Credit Building: Proper use of a these cards can help build credit history, which can be important for obtaining loans and mortgages.
Disadvantages of Credit Cards
1. High-Interest Rates: These cards often come with high-interest rates 30-48% per annum, which can quickly accumulate and lead to debt if not paid off regularly.
2. Fees: These cards may also come with fees, such as annual fees or late payment fees, which can add up over time.
3. Overspending: These cards can encourage overspending, as the cardholder may feel they have more purchasing power than they actually do.
4. Debt: Misuse of these cards can lead to debt trap, which can be difficult to pay off and can negatively impact credit scores.
Key Precautions to Keep in Mind When Using Credit Cards
Make Payments on Time: It is essential to make payments on time to avoid late fees and damage to credit scores.
1. Use Credit Wisely: Only use these cards for necessary purchases and avoid overspending.
2. Pay in Full: Whenever possible, pay off the entire balance of the CC each month to avoid accruing interest charges.
3. Monitor Accounts: Regularly monitor CC accounts for unauthorized charges and other suspicious activity.
4. Be Aware of Fees: Understand the fees associated with your card, including annual fees, late payment fees, and balance transfer fees.
It is clear that these cards are an important financial tool that can provide convenience, rewards, and emergency access to credit. However, they can also be a source of financial difficulties and debt if not used responsibly. By understanding the benefits and disadvantages of these cards, and taking key precautions when using them, consumers can make informed decisions about whether or not to use these cards and how to use them wisely.
FAQs on Best 5 Credit Cards for Poor Credit
- For how many years does CIBIL keep a record of its defaulters? CIBIL records of all defaulters will not be permanent, and you can recover from your low CIBIL Score if there is any default. The records are maintained for 5 to 7 years, and after this time period, the records will not adversely affect your credit score.
- How important is CIBIL score to get a credit card?The score requirements for a credit card can vary from one bank to another. You should note that a CIBIL score is not the only criteria to get a credit card. With a high CIBIL score, your application can still be rejected due to factors like age, banking relationship, income level, and type of employment.
- Are there any loans I can apply for if I have a low CIBIL score?Although most loans cannot be availed with a low CIBIL score, you can get a loan with a higher interest rate charged if your credit score is low.
- Is the CIBIL TransUnion the only credit bureau in the country?There are two other credit reporting agencies in -Experian India and Equifax India.
- What is the ideal credit score to get a credit card?The closer your credit score is to 900, the better is your chance to get a credit card.
- What can be considered as a good credit score?Credit score may vary based on the credit rating company. The credit report and score will provide you with an indication of whether you have a good or bad score. A good score with a particular assessor will more likely to have a good score with another assessor.
- What are the factors that are included in the calculation of credit score?There are a few factors that are considered while calculating an individual’s credit score. Primarily, the account information that includes information of credit cards and loans, the public records containing information pertaining to tax lien and bankruptcy, and the hard inquiries made by your lenders will be accountable for the calculation of credit score.
- What is the significance of credit score range?The credit score range can vary depending on the assessor, however, the value will represent the same level of creditworthiness. The credit score summary will also indicate the health status, it will tell you if a particular score is excellent, good, average, or poor.
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