What are the Risks and Advantages of Using Credit Cards?

Credit Cards have become a ubiquitous financial tool today, offering the convenience of making purchases without carrying cash and providing access to a line of credit for emergencies or unexpected expenses. Like any financial tool, Credit Cards come with their own risks and advantages. It is important one is aware of them so that you can use your Credit Card wisely. In this blog post, we will explore the benefits and drawbacks of using Credit Cards and provide tips for using them responsibly.

The Advantages of Using Credit Cards

In addition to allowing users to make purchases without cash, there are many other advantages of Credit Cards as well. Let’s explore some of them in detail.

Build Your Credit Score

A Credit Card can be a powerful tool for building your credit score. Your credit score is an indicator of your financial health and using a Credit Card responsibly can help you establish a good credit history. When you make timely payments of your Credit Card bills, banks see that you are a responsible borrower. This can make it easier for you to obtain loans and other forms of credit in the future. It can also lead to better interest rates and lower fees on those loans, thus saving you money. Using your Credit Card responsibly and paying your bills on time is essential to avoid adversely impacting your credit score.

Get a Loan on a Credit Card

You can avail a Loan on Credit Card to cover important expenses in time. Here is how:

• A Loan on a Credit Card is an easy and fast way to get access to funds when you need them. When you maintain a good repayment record and use your Credit Card wisely, banks are more likely to offer you a loan against it. The money can be used for important expenses like medical costs, travel, education or other emergencies when you need funds in bulk.

• When you repay the loan EMIs on time, it shows lenders that you manage debt responsibly. This can help improve your credit score and strengthen your credit history over time.

• It is also important to know that such a loan does not require you to submit a huge pile of paperwork. The loan amount is transferred directly to your bank account and might be adjusted as a part of your Credit Card limit.

Always remember to read the interest rate and terms of the loan before finalising it.

Reward Points and Cashbacks

One of the biggest perks of using Credit Cards is their rewards programmes. Many Credit Cards provide one of more of the following rewards:

• Reward points

• Cashback on purchases

• Discounts on food orders and other purchases

• Lower EMI rates on online purchases

• Exclusive access to deals and privileges.

These benefits can be particularly advantageous if you use your Credit Card regularly for expenses like groceries, fuel, travel, food, online purchases and bills. Using your Credit Card for such routine expenses can help you accumulate reward points or cashback, which can be redeemed later for discounts, gift cards and other benefits. However, it's essential to understand the terms and conditions of these reward programmes and use your Credit Card responsibly to avoid accumulating debt and interest charges.

Increased Protection

Banks offer fraud protection to Credit Card holders, which means that if someone steals your Credit Card information and makes unauthorised purchases, you won't be held liable for the charges. Banks also monitor your account activity and can detect and block suspicious transactions. Some Credit Cards also offer extended warranties on purchases, providing more peace of mind when purchasing expensive items such as electronics or appliances. However, it's crucial to read the terms and conditions of your Credit Card to understand the extent of these protections and to take measures to protect your Credit Card information, such as by not sharing it online and not disclosing it to anyone.

Risks Involved in Using Credit Cards

While Credit Cards offer several benefits, not using them mindfully can lead to high-interest debt, late fees and damage to your credit score.

Debt Accumulation

One of the most significant risks associated with Credit Cards is the potential for accumulating debt. Credit Cards allow you to buy now and pay later, which can lead to irresponsible spending. They also allow you to make partial payments of the bill amount every month. If you continue to overspend and carry forward unpaid balances from month to month, you can quickly accumulate debt that you might find difficult to repay. This can lead to interest being charged at high rates, late payment charges being levied and your credit score being adversely impacted. Using your Credit Card responsibly, making timely payments and avoiding carrying over unpaid dues is essential to prevent debt accumulation.

The Urge to Overspend

The potential for making impulsive purchases for instant gratification is another potential pitfall of using Credit Cards. With the ease of online shopping, it's easy to get caught up in the moment and make a purchase that you never needed in the first place. This can be especially harmful if you're struggling with previous debt or are living salary to salary. The ease of using Credit Cards can lead to overspending, especially if you're not keeping track of your expenses. However, many banks assess your finances and offer you a monthly limit on your Credit Card to avoid overspending. Additionally, creating a budget and monitoring your spending can help you stay within your means and avoid overspending.

High Interest Rates

Missing Credit Card payments on their due date can result in interest being charged on the unpaid amount, often at high interest rates.  It's crucial to read the terms and conditions of your Credit Card and understand the interest rates and fees associated with your Card before applying. This can help you make informed decisions about using your Credit Card and avoid accruing high interest charges.

Reward Programmes

Credit Card reward programmes help you save on your purchases, but they can also be a disadvantage. While they are beneficial if used responsibly, they can also lead users to overspend money in order to earn points or cashback. It's important to strike a balance between using your Credit Card for maximising benefits and staying within your budget.

Conclusion

Credit Cards can be advantageous or risky depending on how you use them. Using them responsibly can help you to build your credit score, earn rewards and get additional protection for your purchases. With ICICI Bank, you can even opt for CPP Card Protection which protects your and your family members' Credit Cards in the case of loss, theft, fraud and other emergencies. However, overspending or missing bill payments can lead to debt accumulation and can negatively impact your credit score. It's important to understand the terms & conditions and all applicable charges of your Credit Card, pay your bills in full each month and stay within your budget. Doing so will help you reap all the benefits of Credit Cards while avoiding potential pitfalls.

So why wait? Get your ICICI Credit Card now!