What is Benefits and Disadvantages of Using Credit Card?

What is a credit card?

A credit card is a type of bank card that allows you to borrow money (credit) before paying it with interest. They work as a type of loan, but instead of getting money in an account, you get a credit to spend on the card, before paying what you owe each month.

Types of credit cards

1.       There are several different types of credit cards designed for different people and purposes, including:

2.       Offer rewards based on how you use them.

3.       Help you build your credit report.

4.       Allows you to transfer credit to a new card with little or no interest

5.       The type of credit card you need will depend on your specific circumstances - learn more about what's available through our guide to credit card types.

How do credit cards work?

If you successfully apply for a credit card, you will receive the card in the mail. Separately, you will receive a Personal Identification Number (PIN) to accompany the card. Once you get your card and PIN, you must activate the card, often online, to be ready for use.

You can use your credit card to make purchases before paying the balance, or part of what you owe each month. Generally, you must make a minimum monthly payment to avoid any fees, but if you pay your full balance each month, you can avoid paying interest.

This means that if used reasonably, credit cards can function almost like an interest-free loan. However, you don't make your payments on time and you can face charges in addition to high interest rates. Responsible use of your credit card can provide significant financial benefits.

Do I have to apply for a credit card?

If you are considering getting a credit card, you should consider whether you are in the best place to apply for it. While it may vary between service providers, they generally use the following criteria to determine if they will accept your request:

Your financial record: Any county court ruling (CCJ) or bankruptcies on your record can reduce the likelihood that your credit application will be successful.

Your earnings: Some service providers require you to earn regularly to qualify, some even have the minimum amount you must earn.

Your Credit Score: Lenders look at your credit score, report, and use this information to assign you a credit score. Since each lender creates their own credit score based on their own requirements, you can obtain different degrees with different companies. Credit card providers use this result to determine if you qualify for your credit card.

When you apply for a credit card, you leave a record of your credit report, and the more requests you make, especially rejected requests, the harder it will be to obtain credit in the future.

This is because many applications can make lenders think that you are suffering for your money or that you are an irresponsible borrower. As a result, they may think that they run the risk of not being able to pay their future installments.

You can find more information in our guide on whether to accept a credit card.

What is Advatnges and Disadvantagesof Using Credit Card?

Benefits of using a credit card

§  As long as you use it correctly, credit cards can enjoy a number of advantages over debit cards and cash payments. These include:

§  Deploy purchases: With a credit card, you can spread the cost of a large purchase, such as appliances, into multiple monthly payments. This can be useful in emergencies, as you may have a hard time paying instantly for something you need

§  Buy now to pay later: It can also be a more convenient option to use a credit card, since it can allow you to buy a product or service, but do not pay until the payday begins and you can make the monthly payment

§  Obtaining Purchase Protection: Any purchase you make between £ 100 and £ 30,000 on a credit card protected under Section 75 of the Consumer Credit Act. This means that if an incorrect transaction occurs, for example, if the sales company declares bankruptcy or if the purchase is incorrect or missing, you can claim the cost again from your credit card provider. You can also claim a refund if your credit card is used fraudulently, as long as you are not neglected; read more with our credit card security guide

§  How to get an interest-free loan: Some credit cards offer an interest period of 0% that allows you to get loans for free, allowing you to save on your monthly payments. Even if you pay the minimum amount required each month, you will continue to borrow without interest until this period ends. At this point, it is best to pay your debts in full, otherwise you will be able to go back to the standard rate from the service provider, which can be very high. You can also go back to the standard rate if you missed a payment or exceeded your credit limit. While interest-free credit cards can be a great benefit, they should be used reasonably.

§  Earning benefits and rewards: Many credit cards also include various benefits and incentives that can be helpful if you choose the right benefits. For example, if you're a keen shopper, you might find an ideal cash back or store credit card, while if you travel frequently from one country to another, you may prefer an airline credit card. Read more about how to take advantage of our credit card rewards guide.

§  Reducing your debt: With a balance transfer credit card, you can transfer existing debts to a single credit account, usually with or without interest. This means that it reduces the amount of money you pay in interest, allowing you to pay off debt faster.

§  Increasing Your Credit Rating - If you have a weak or limited credit report, Credit Cards Creator Credit may offer a way to improve your financial position and create better lending habits. Since they target people with low credit ratings, they can often charge higher interest rates, but as long as you pay your payments in full each month, you won't have to pay any interest. Paying your balance continuously means that you will be able to slowly generate your credit report, showing that you can borrow money responsibly over a long period of time.

Disadvantages of using a credit card

When using a credit card, you should be aware of the following risks:

·         Debt Potential: The main risk of getting a credit card is that you can get heavily in debt if you can't pay what you borrowed. Some credit cards can charge high interest rates, sometimes more than 20%, and can accumulate quickly if you don't pay the balance

·         Your Credit Score: Allowing your credit card debt to accumulate, or missed payments, can affect your credit rating. The lower your credit rating, the more difficult it will be to apply for credit in the future.

·         Fees and Charges: Credit cards can also accompany fees and charges if you do not meet your payment or exceed your line of credit. You have to be careful how to use it

·         Limited use: You may be restricted in how and where you use your credit card. For example, many of you will incur fees to withdraw cash or use the card abroad unless otherwise specified in the credit agreement.

How can I use my credit card effectively?

To ensure you get the best out of your credit card, keep the following in mind:

1.       Never miss a payment - late payments can lead to charges and the loss of some benefits, so it's important to keep your balance even if it means paying the minimum monthly amount

2.       Pay more than the minimum: However, it is generally better to pay as much as possible, ideally the full amount. This can help you keep control of your balance and avoid getting into debt, and with interest-free credit cards it can be as good as an interest-free loan.

3.       Set up direct debit: If you think you may not remember having made your payment every month, you can try setting up direct debit for the minimum monthly amount to make sure you can at least make the payment.

4.       Take advantage of rewards - credit card rewards can be a great reward for your credit agreement, but since they can sometimes cost you extra, you should benefit when you can, otherwise you will pay for an unused service

5.       Get a card that meets your needs, so you should think about what to use for your credit card before applying. There would be no point paying an additional Airmiles credit card if you don't fly a lot. If you have a lot of debt, it is worth thinking about balance transfer cards more than store or supermarket cards.

6.       Use it in a reasonable way: you should check if your credit card fee is for cash withdrawals or use abroad. If you think you will do either of these two, it is best to find a credit card that provides these services for free.