To most people, credit cards seem like a no-brainer way to get cheap or even free money. After all, many banks let you use their services in exchange for an agreed-upon interest rate and other fees. However, that doesn’t mean getting a credit card is something everyone should do. In fact, there are some major risks associated with using credit cards that most people fail to consider before applying. Credit cards are designed as a financial tool that allows you to borrow money from a bank rather than deposit cash into an account. With a credit card, you can spend money the moment it’s deposited into your bank account. This means you don’t have to wait until next week or month before accessing the money from your savings account again.
What Are The Benefits of Using a Credit Card?
Credit cards can help you get a better rate on things like home improvements, vacations, and car purchases. You can also take advantage of store or restaurant gift cards. You can also use a credit card to make large purchases like a car, a house, and even a boat. However, before you rush out and apply for a credit card, it’s important to understand both the benefits and risks. Using a credit card to make an annual payment on your mortgage can improve your credit score because the bank will look at your payment history and give you a lower interest rate. You can also sign up for a credit card that gives you an “interest-free” period. This usually only applies to new purchases, but it can save you a lot of money on your next car payment or house payment.
What are the Risks of Using a Credit Card?
Like any type of debt, credit cards carry a number of risks. For one thing, they are mostly paper debt, meaning there is a potential paper loss if the system crashes and your account is frozen or goes bankrupt. Furthermore, credit cards are often used by people with lower credit scores, which means they may have a hard time getting approved for new credit in the future. Credit cards also often have an annual fee, so you could end up paying more than you would if you just paid for the items using cash. If you don’t pay off your balance each month, you could be subject to late fees and interest charges. Also, keep in mind that if you lose your card or it’s stolen, you could be subjected to online scams that try to steal your identity.
Should You Get a Credit Card?
Credit cards are an important financial tool, but they aren’t right for everyone. Before you sign up for a card, it’s important to weigh both the benefits and risks. First, it’s important to understand your own financial situation and the type of credit card best suited for your needs. If you can’t get a mortgage or you want to minimize your risk, a secured credit card may be a good option for you. If you can get a credit card, you need to make sure that you understand the risks and get yourself ready for the potential impact. Otherwise, you could end up in over your head and struggling to pay off the debt.
Credit Card Eligibility
The eligibility criteria for a credit card are dependent on a range of factors. Check out the primary eligibility criteria for credit cards
|Employment status||Salaried or Self-employed|
|Income||Depends on one bank to the other|
|Credit Score||Good credit score (700 and above)|
Documents Required to Apply for a Credit Card
Applicants can submit any one of the ID proof, address proof, and income proof documents listed below.
|Requirements||Salaried Individuals||Self Employed|
|ID Proof||Passport, Permanent Account Number (PAN) card, Aadhaar card, Voter’s ID||Passport, PAN card, Aadhaar card, Voter’s ID|
|Residential Proof||Aadhaar Card, Electricity Bill, Telephone bill||Aadhaar Card, Electricity Bill, Telephone bill|
|Income Proof||Salary Certificate, Recent Salary slips, Employment Offer Letter||Certified Financials, Recent Income Tax Returns (ITR) Statement, Passport|
Secured vs Unsecured Cards
As mentioned above, credit cards often come with an annual fee. That fee can be paid off each month with regular payments, sending a monthly payment to the card company, or a combination of both. If you can’t pay off the full amount each month, it will build up and impact your credit score over time. However, you can get yourself ready for this by getting a secured credit card. A secured card is like a regular credit card, but you put up a small amount of money, like Rs.40,000 or less, as collateral. If you miss payments, the credit card company will come and take the money from your account.
Can you get an Unsecured Credit Card?
While most credit cards are secured with a security deposit, some cards are unsecured. An unsecured card does not come with any sort of deposit and has no form of protection if you miss payments. This means you will be charged interest from the moment you make a purchase from this card. If you have been denied credit in the past, an unsecured card may be what you need. Unsecured cards are usually offered by smaller, local banks that typically don’t have a database of customers to automatically reject you based on bad payment history.
How to Apply for a Credit Card?
You can apply for a credit card online or offline. Here is the process to apply for a credit card online:
- Visit the official website of the bank.
- Explore various credit cards offered by the bank.
- Compare all their features and benefits
- Choose the card that is right for you and click the ‘Apply’ button.
- Fill in the details required and upload all documents necessary.
- Submit your form.
Features & Benefits:
|Welcome Gift||Many banks offer a welcome gift to new credit card applicants such as bonus reward points, vouchers, discounts, etc.|
|Rewards Program||All credit cards have a reward program, where the cardholders can earn reward points on every purchase they make using their cards.|
|Fuel Surcharge Waiver||Banks offer a fuel surcharge waiver to all the cardholders on spending a specific amount of money on fuel monthly.|
|Cashback Benefits||Many credit cards offer cash back advantages to the customers.|
|Lifestyle Benefits||Cardholders can enjoy various lifestyle benefits such as offers on dining, shopping, wellness, entertainment, etc.|
|Travel Benefits||Travel benefits include air miles, airport lounge access, travel insurance, airline offers, hotel offers, etc.|
|Airport Lounge Access||Some credit cards offer airport lounge access to cardholders. However, this offer varies from one bank to another.|
|Add-on Cards||Credit cardholders can apply for add-on credit cards for their family members.|
|Insurance Coverage||Few premier cards provide an insurance policy that offers coverage against air accidents, life, lost baggage, lost card, outstanding, etc.|
|Balance Transfer||Cardholders can transfer the outstanding balance of their existing cards issued by one bank to a new credit card account of another bank.|
|Global Acceptance||Most of the credit cards issued in India are international credit cards and are accepted by many merchants all over the world.|
|EMI Conversion||This feature allows the card members to convert their credit card transactions into easy monthly installments (EMIs).|
|Credit Score||Getting a credit card helps you build your CIBIL score. By making timely payments, you receive a positive credit score from the credit bureau, CIBIL.|
Credit cards can help you get the things you want and make big purchases like cars and homes. They can also give you an easy source of cash in an emergency. However, there are some significant risks associated with using credit cards, including the risk of having your identity stolen and paying more than you would if you just paid for things with cash. Therefore, before you apply for a credit card, make sure you understand both the benefits and risks.