Credit cards are often wrongly viewed by many as the root cause of financial troubles. People tend to believe that these could lead to a debt trap very easily. However, if credit cards are used in a disciplined manner, one can find it easier to manage personal finances, save money and build strong financial health. Here’s how.
Here are the top 5 ways in which credit cards can improve your financial health:
Build credit score
Using credit cards for transactions is somewhat similar to using loans. Transactions made through credit cards are noted by credit bureaus while calculating your credit score. Loans come with an interest component; however, credit cards do not add any interest cost provided the credit card bill repayment is done by the due date every month. Thus, credit cards can be the easiest and cost-effective paths towards building a good credit score and thereby ensuring good financial health.
Banks and lenders consider a credit score above 750 to be good and individuals with a high credit score often have better chances at availing loans and credit cards easily. A good credit score also means flexible and manageable repayment terms.
Result in Savings
Most credit card issuers provide various benefits to cardholders through reward points, discount offers, cash backs, etc. There are also various lifestyle benefits accompanied with most credit cards, including complimentary club memberships, lounge accesses, etc. Since these benefits may vary across different credit card categories, it makes sense to make use of the benefits as per individual spending habits and lifestyle.
For example, those who spend a larger amount on travel expenses like air travel, hotel stays, etc can avail of travel credit cards, while those who incur high fuel costs can opt for fuel credit cards. Individuals must apply for credit cards that offer benefits that are higher in value than the annual/joining fee charged.
Cash flow management
An interest-free period attached to a credit card is a good way to manage monthly cash flow. This period refers to the timeline between a credit card transaction date and the due date of its repayment. Generally, an interest-free period could range anywhere between 18 and 55 days.
An interest-free period comes as zero-cost finance for the transactions made through a credit card till the due date of repayment arrives. To make the most of an interest-free period, credit card users must try to time any big-ticket credit card transactions during the initial days of the credit card billing cycle. Those who own multiple credit cards and have to deal with different due dates can benefit by making card transactions using various cards such that there is a longer interest-free period for major spends.
It is important to note that if one fails to repay credit card bills by the due date, it can attract hefty interest fees as finance charges @ nearly 30-49%. This is applicable starting from the transaction date till the date of actual repayment. Non-repayment of the credit card bill can also lead to withdrawal of interest-free period on new credit card transactions till the complete repayment is made on the due bill. An interest-free period will not be applicable on ATM withdrawals made using credit cards.
EMIs to the rescue
Credit card users also have an option to get the entire or part of their credit card bill converted to EMIs. The interest rate in such cases could be far lower than charges applicable on delayed payments. The EMI tenure can range between 6 and 60 months. Those who have restricted repayment capacity can make the most of this facility.
Many credit card issuers have tie-ups with manufacturers/ service providers to offer EMI facility at lower rates or no cost. Some even offer additional discounts and cash backs to credit card holders while availing of the no-cost EMI option on chosen services and products. Find out how to avail EMI on top credit cards.
Additional Reading: Should you convert credit card bills into EMI?
Credit card issuers may offer pre-approved loan against credit cards to card users who maintain a good repayment track record and good credit profile. These loans are often sanctioned against the available credit limit. However, some credit card issuers may allow loan sanctioning over and above the credit limit.
Since this is a pre-approved loan, there is often minimal or no documentation requirement. This allows quick disbursal of the loan amount within as little time as the same day of submitting the loan application. This can help credit card users to improve their financial situation in the short run and financial health in the long term.
Credit cards must be used with utmost care and users should ensure to make the most of the benefits that come along. This can have positive long-term effects in terms of positive financial health through high credit score and good credit report. Get a free credit health check-up and start improving your financial health.
- What can credit cards do to your financial health?
Credit cards can improve your financial health in the long term if used appropriately. It is important to ensure timely credit card bill payments for a good credit score and thereby good financial health.
- Why does having a credit card improve your credit rating?
Credit card usage is carefully considered by credit bureaus while calculating a credit score. Judicious usage of credit cards and timely repayments can help in fetching a good credit rating or score over time.
- How do I use a credit card to improve my credit score?
A good credit score is often an outcome of timely credit card bill payments. Along with this, it is important to ensure a lower credit utilisation ratio for a good impact on the overall credit report.
- How do I improve my credit score?
Never close your old credit card accounts if you want your credit score to improve. You must also ensure timely repayments of credit card bills and loan EMIs for a good credit score.
- How do I get my credit score up to 100 points in one month?
To increase your credit score quickly, you can check for any errors in your credit report and report them immediately if found. Apart from this, good credit behavior and timely repayments will help in improving your credit score.