The concept of credit originates from the Latin word "credere," which translates to belief or trust. In the world of finance, credit signifies the belief that a financial institution places in an individual to honour their commitment to repay borrowed funds. Today, credit extends far beyond a mere belief; it has become a means of cultivating a better life and achieving financial security. Utilising credit responsibly can lead to substantial savings and open the door to financial advantages. Let us delve into how credit can provide individuals with a significant financial edge and the reasons why it is essential to harness this financial tool effectively.

Why should you consider credit?

Whether your aspirations involve obtaining a substantial loan for a business venture, purchasing a home or a car, or pursuing higher education with an overseas study program, establishing a credit line serves as the first step toward building a commendable credit history. A solid credit history, together with timely repayments, builds a positive relationship with banks and financial institutions, making it easier to secure loans in the future.

6 Advantages of having credit

Rewarding credit card transactions

While using a debit card offers a straightforward payment method, it does not provide any additional benefits. In contrast, credit card usage often comes with the added advantage of rewards and points. These rewards accumulate with each transaction and can be redeemed for shopping or travel expenses. As one's credit score improves, credit limits are likely to increase, enabling the accumulation of even more points and rewards, which contribute to further savings.

Security and Safety

In the unfortunate event of a credit card theft, unauthorised purchases made on the stolen card do not hold the cardholder responsible for payment, as long as the bank is immediately notified of the incident. This level of security offers peace of mind to credit card users, knowing that their financial interests are safeguarded against fraudulent activities. Here’s what RBI has to say about unauthorised electronic banking transactions.

Enhanced convenience

Credit cards offer convenience in managing one's financial commitments. For instance, if a payday is delayed, but rent is due, a credit card can serve as a reliable backup to make the necessary payment. Additionally, when faced with multiple bills due at various times of the month, using a credit card for payments allows for timely transactions, with the option to repay the amount later. During emergencies, credit cards can be instrumental in covering critical expenses, which can be converted into manageable EMIs for ease of repayment.

Efficient expenditure records

Keeping track of expenses and establishing a well-structured budget become effortless with a credit card. Regularly monitoring credit card transactions provides valuable insights into spending patterns and financial habits, enabling users to make informed decisions about their finances.

Swift and Hassle-Free Loan Approvals

A good credit history significantly expedites loan approvals on not just credit cards, but any form of credit. Financial institutions are more inclined to approve loans for individuals with responsible credit usage. Upon approval, the loan amount is promptly transferred to the designated bank account, allowing borrowers immediate access to the funds they need.

Managing cash flow

Credit cards offer a convenient and accessible means of obtaining funds when faced with financial shortfalls. By using a credit card, individuals can bridge the gap between their immediate needs and available resources. However, it is crucial to bear in mind that the true advantage of using a credit card lies in exercising responsible financial management. To fully benefit from the credit card's support, it is essential to commit to paying off the outstanding balance in full and on time.

Important points to keep in mind with credit cards and loans

Always pay the outstanding balance in full

When it comes to managing credit lines or loans, paying the outstanding balance in full is of utmost importance. While the minimum due may seem like a tempting option to maintain credit services, continuing to do so can lead to the accumulation of interest on the remaining balance. To avoid falling into a debt trap, make sure to settle the entire outstanding balance on your credit card and loans.

Avoid overspending

A general rule of thumb is to utilise only up to 30% of the credit limit available on the credit card. Staying within this limit allows cardholders to maintain a healthy credit utilisation ratio, which positively impacts their credit score. To prevent overspending, it is essential to create and adhere to a well-defined budget. By tracking expenses and controlling impulse purchases, individuals can better manage their credit card usage, loan EMIs and other financial obligations.

Navigating Annual Charges

Some credit cards come with annual charges, which may be waived if a certain spending threshold is met within a specified time frame. However, it is crucial to evaluate the value of the card and the benefits it offers against the annual fee. If the annual charge appears excessive and the benefits do not align with your needs, it might be more sensible to opt for a different card without such charges. Choosing a credit card that suits your spending habits and financial goals ensures that you make the most of the card's features without incurring unnecessary expenses.

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