Maximising your money: The advantages of using credit cards

By Sahaj Palla

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.


How can I apply for a credit card?

You can enquire for a credit card from your bank or walk into any bank and check if they can provide you with a credit card. They’ll provide you with an application form and ask for certain documents. There are certain checks that a bank will run before it approves you for a credit card.

Note: Credit cards are not bank specific i.e., it is not necessary that you’ll only get a credit card from a bank if you have an account with them, you can also use another bank’s credit card.

What is credit utilisation ratio?

Credit utilisation ratio is the percentage of credit used from your available credit limit. It can be calculated using the following formula:

Credit Utilisation Ratio = (Total Outstanding Amount/Total Available Credit) X 100

Your credit utilisation ratio is a key factor when it comes to calculating your credit score. To maintain a good credit utilisation ratio one should try and use up to 30% of their credit limit and pay the outstanding due on time.

What is meant by credit card balance transfer?

Credit card balance transfer is the practice of transferring one credit card’s outstanding amount to another one. This is usually done when interest is accumulated on one’s balance due to non-payment and banks may provide an alternative card that can help you pay that balance with lower interest rates. However, it is best to avoid overspending and pay dues on time, the former can be done by maintaining a budget.

What is the difference between total due and minimum due on credit cards?

Total due or total outstanding amount on your credit card is the total payable amount, on the payment of which you won’t be charged anything. However, when you pay the minimum due you will not be charged late fees and will be able to use the credit card services as usual but there will be an interest charged on your balance amount, and the rate of interest for credit cards is exceptionally high. So, it is a healthy practice to pay the total due amount on credit cards every time.

How many kinds of credit cards are there?

While there are various credit cards available in the market, broadly there are two kinds:

Standard credit cards: These are straightforward credit cards that have some basic features and are mostly free from annual charges. If you are starting then these kinds of credit cards will suit you best.

Specialised credit cards: These kinds of cards are suitable for specific purposes and give rewards if used for that specific purpose. Examples include fuel cards, dining cards, and travel cards among others.