Benefits of Credit Cards in India - All you need to know

When responsibly used, credit cards can serve as an excellent financial instrument for managing finances. Such instruments not only provide instant access to credit but can even assist their users to save money in the form of cash backs, reward points, vouchers, air miles etc. Here, we will discuss crucial credit card benefits, credit card advantages and disadvantages, and other credit card linked information in detail.

Credit Card Benefits

As stated above, credit cards are a convenient financial tool, and credit card benefits include easy credit access for making regular payments, benefits from several discounts, no-cost EMIs, cashback offers etc. However, transacting beyond your repayment capacity and failing to repay the outstanding card dues within the due date can sweep credit card users into morbid debt traps. Below, we will explore both credit card advantages and disadvantages.

Let us first look at crucial credit card benefits.

1. Helps build a credit score

As making transactions through credit cards is equivalent to taking up loans, timely repayment of credit card dues has the same positive effect on one’s credit score as other credit options. Note that, unlike loans, usage of credit cards does not include interest cost if you repay the whole outstanding due in full on time. This specific feature makes the credit card option one of the convenient and cost-effective ways of building a good credit score. Moreover, make sure as a user of a credit card, you should avoid using over 30% of the credit limit as this can lower your credit score.

Generally, 750 and above is considered to be a good credit score. Those with such credit scores have increased chances of getting their application for loans/credit cards approved. Such users can even avail of loans at lower rates as compared to those with a lower credit score of below 750.

2. Can assist save money through credit card benefits

Credit card issuers incentivise transactions through credit cards in the form of discounts, reward points, cash backs, vouchers etc. You can maximise credit card benefits by choosing such cards whose benefits and reward point structure are the best match with your spending pattern and lifestyle.

Moreover, many credit cards even provide lifestyle linked credit card benefits like complimentary club memberships, free lounge access and others. Thus, always opt for such credit cards whose monetary benefits exceed the joining/annual fee of the credit card by a great margin.

 Also, to make most of the credit card benefits, ensure to timely redeem all your credit card’s reward points before they expire. One can redeem reward points by purchasing vouchers, merchandise and numerous other services mentioned on the credit card’s reward catalogue. Few credit cards even allow one to use their accumulated reward points for repaying their outstanding credit card bill.

3. Provision of an interest-free period

The interest-free period, also called the grace period, refers to the time duration from credit card transaction date to the due date for their repayments. Credit card issuers charge no interest on any transactions through credit card in the course of the interest-free period if the whole outstanding bill is repaid within the due date. Interest-free periods generally can go up to 55 days based on the date of the transaction.

 For maximising the benefit of the interest-free period, try and time your big amount of credit card purchases during the initial days of the card’s billing cycle. Doing so can reap card users with one of the most crucial credit card benefits, i.e. it endows card users with over a month’s time for repaying the big-ticket credit card transaction.

 4. Allows to finance your credit card spends through EMIs 

Those card users who fail to repay their card bills completely or partially have the option to convert their credit card bills either fully or in part into credit card EMIs. Likewise, those card users who are not able to make crucial big-ticket transactions owing to poor repayment capacity can partake in such transactions and then convert them into EMIs.

There are even many card issuers with tie-ups/collaborations with several manufacturers and merchants for providing EMI facility either at lower or zero cost on their merchandise and services. In the case of zero cost/no-cost EMIs, the whole interest cost constituent of the EMI option is borne by manufacturers or merchants, while credit card users just need to repay the buying cost through EMIs. Note that few of the merchant collaborations with the card issuers even provide additional discounts/cash backs to their cardholders, taking up no-cost EMI on select goods and services.

5. Instant credit disbursal via loan against credit card option to meet emergencies

Credit card issuers provide pre-approved loans against the credit card to select credit card users with excellent credit profiles and repayment track record. Loan against credit card’s pre-approved nature acts as one of the biggest credit card benefits for those cardholders who witness instant monetary requirements due to emergencies or other reasons as such loans get disbursed on the same day of submitting a loan application.

Though such loans are generally sanctioned against one’s available credit card’s credit limit, few issuers even offer a variant of such loans wherein they sanction loans over and above one’s available credit limit.

Credit card drawbacks: 

1. Heavy finance charges on non-payment of credit card bill 

Card issuers charge heavy finance charges of up to 49.36 % p.a. on the unpaid proportion of the credit card dues. They even withdraw an interest-free period/grace period on all the fresh card transactions until previous card dues are repaid. Thus, non-repayment of the whole card due for numerous months clubbed with constant credit card transactions in the course of the interest-free period results in the quick build-up of credit card debt.

 You can deal with such events by converting your unserviceable credit card bill component into EMIs. Interest rates incurred in such conversions are way lower as compared to the credit card’s finance charges incurred on the unpaid card bills. Even the tenures of such conversions can range between three and sixty months. This enables card users to select EMI repayment tenures based on their repayment capacity. Card issuers even permit their cardholders to convert their specific card transaction over a predetermined threshold limit into EMIs. Once all unpayable dues are converted into EMIs, card users again regain one of the crucial credit card benefits, i.e. the ability to use their interest-free period for all their fresh card transactions.

 2. Heavy finance charges and cash advance fees on opting for ATM cash withdrawals

 Card issuers levy finance charges on conducting cash withdrawals through credit cards. Also, they charge cash advance charges of up to 3.5% of the withdrawn amount. Issuers continue to charge finance charges until you repay the whole cash amount withdrawn from the ATM. Thus, cardholders should not make ATM cash withdrawals using their credit cards. In case of immediate monetary requirement where ATM withdrawals using credit cards become unavoidable, ensure to repay the whole cash withdrawal amount as early as possible.

From the above credit card advantages and disadvantages, you must have got a basic understanding of credit card benefits and the incorrect steps to be avoided to make most of such credit card benefits. Further below, we will discuss premium credit card benefits and crucial must know credit card benefits/features and benefits of opting for credit card upgradation.

Other Credit Card Benefits/Credit Card Features

1. Availability of balance transfer facility

As per the balance transfer option, cardholders can transfer their unpaid dues to another credit card issuer at nil or lower interest cost for a predetermined timeline, generally up to 3 months. Note that this period is called the promotional interest period. This facility is particularly useful for those with the capacity to repay their whole outstanding bill within the promotional interest period. Remember, once the promotional period ends, card issuers begin to charge the usual finance charges on the unpaid transferred balance.

2. Provision of add on cards to primary card user’s family member

Add-on cards are just subsidiary to the primary credit cards, which are issued for primary credit card holder’s parents, spouse, children (over 18 years) with a thorough understanding that the add-on card’s liability would be on the primary cardholder. Such cards extend the same credit card benefits as enjoyed by primary credit card users to their add on card users.

Premium Credit Card Benefits

Credit card issuers provide premium credit cards for meeting the unique lifestyle needs of the higher income groups. Like every financial instrument, premium credit cards come with certain credit card advantages and disadvantages. Credit card benefits linked with premium cards include higher credit limit, free access to lounges/golf courses, reduced mark up charges on making foreign currency transactions, increased reward points and discounts etc.

 However, drawbacks of such cards are that they may come with higher annual/joining charges and income eligibility criteria, with few of them strictly being ‘invite only’ in nature. Thus opt for the card whose monetary credit card benefits in the form of cash backs, welcome benefits, free vouchers, renewal benefits, reward points surpass their annual/ joining fees.

Benefits of Upgrading Credit Card

 A major advantage of opting for a credit card upgrade is the provision of higher credit card benefits in the form of cash backs, discounts, reward points, vouchers etc. The second crucial benefit of opting for a card upgrade is the chances of availing a higher credit limit. There are very few card issuers who may offer a higher credit card limit when upgrading your credit card. Opting for a higher credit limit has several credit card benefits. One of the crucial credit card benefits is, it allows enhanced potential to carry out card transactions, particularly on events when you require making big-ticket transactions by choosing zero cost or no-cost EMI facility. Opting for an enhanced credit card limit even enhances the card holder’s potential to deal with financial emergencies just by either making card swipes or opting for a loan against a credit card.

Lastly, an enhanced limit also assists in improving one’s credit score. Credit bureaus factor in the CUR (credit utilisation ratio) when calculating the individual’s credit score. CUR is the proportion of the credit card limit used by the individual. CUR of 30% and below indicates responsible credit behaviour, and thus, the bureaus score such individuals with higher credit scores. Hence, choosing a higher credit limit during credit limit upgradation can lower your CUR and, thus, ameliorate your score.

How to Apply for a Credit Card Online?

One can apply for a credit card online by following the listed steps: 

Measure 1: Visit an online financial platform offering several credit card options from different issuers

Measure 2: Select the card based on your spending pattern, such as if you spend an excessive amount on fuel, opt for a fuel card, or if you spend a lot on shopping, opt for lifestyle-related cards.

Measure 3: Undertake comparative cost-benefit review, wherein you should compare the different credit card benefits of your choice with their annual/joining fees. Opt for the card whose credit card benefits exceed their annual charges by a huge margin.

Measure 4: Apply for the selected card by filling up basic details.

Measure 5: You will receive a call from the financial institution’s representative, who will simply guide you through other required steps to avail of the credit card.

Frequently Asked Questions (FAQs)

✅What are the benefits of having a credit card?

Major credit card benefits include the provision of the interest-free period, availability of EMI options to finance spends and purchases, quick credit disbursal in the form of loan against the credit card to meet financial emergencies, save money through various credit card benefits like reward points, cash backs, discounts etc., and help build/improve credit score.  

✅What are credit card advantages and disadvantages?  

For those who are financially disciplined, credit cards can help with saving money, managing finances and improving credit scores. However, credit card’s instant access to credit feature can often lead those lacking financial discipline or product awareness to overspend and incur hefty finance charges on their card outstanding bill.  

✅Do I get charged for using my credit card? 

Financing your spending through credit cards is completely free until your whole outstanding card bill is repaid on time. Finance charges of between 24% and 49% p.a are levied on failure to repay card bill by the due date or if you opt for ATM cash withdrawals using credit cards from the cash withdrawal day until you fully repay the withdrawn amount.  

✅How can those denied credit cards build/improve their credit score? 

Those not able to avail of regular credit cards owing to reasons like no/low credit score, unserviceable locations, low income etc., can avail of secured credit cards to build their credit score. Such cards are offered against one’s fixed deposit. As the transactions in secured cards are even reported to credit bureaus, responsible use of such cards can assist their users in building/ameliorating their score and thus, enhance their loan & regular credit card eligibility. 

✅How can credit card users avoid incurring finance charges on their card? 

Cardholders can avoid incurring finance charges on their card by spending basis their repayment capacity, choosing EMI options on inability to repay their outstanding bill and avoiding cash withdrawals using their credit cards.