Made on Canva
Old Fashioned people think having a Credit Card means you don't have enough money and that is the reason you own a Credit Card. But little they know the Credit Card Companies offer their cards if according to them you have the ability to repay or we can say you are rich enough to make the payments.
Now, it's better that you know, what are the factors depending on which they decide whether you are worthy of their Credit Cards or not:
The required minimum age is of 18 years. Though that is not the ideal one, company prefers to give out cards once you start earning.
Your earnings should be enough that you can pay your monthly bills. In India the benchmark is set over Rs. 16,000($213, $1 = Rs 74.85), but real case scenario is a bit different-they prefer income over Rs 25,000.
This is a calculation done by the banks before handing out the credit cards. Results are in percentage and the foemula is:
Debt / Income = DIT
Supposedly, monthly repayment of student loan is $500 and that of your car is $300 and your income is $4000
$800 / $4000 = 20 %
Lesser the Better. DTI of 43 percent is the highest allowed by the lenders and the perfect score is below 36 percent.
If your income is higher than the bar set by the respective government of the country for tax collection, then you pay taxes and file income tax return. This is also in the watchlist of the lenders.
But the question is - Do you really need a Credit Card??
Living in 21st century if you are not using a credit card, you are a foolish person.SO lets discuss some of the benefits of using a Credit Card:
Credit Card is nothing but a loan. The only privilege is that in a personal loan the interest rates vary from 12% to 18%, whereas in credit card it's interest free providing that you are paying your bills on time.
If we elaborate it if you make a purchase of $100 on 21st april and your billing cycle date is 20th of every month and due date is on 10th. Then the purchase you made on 21st April through your credit card is like you took a loan of $100 that you need to pay after 30 days and before 50 days. So you are getting 50 days of time to repay your bill.
Even if you have $100 dollar in your account, in this 50 days you can earn the interest through it and then pay off the bill after 50 days.
Nowadays danger of fraud transactions are very common whether be it your credit or debit card. Usually the cards you use very frequently are the most vulnerable to fraud.
When fraud transaction happens with your debit card which is directly linked to your account, your money is gone.. poof.!! But when it occurs through credit cards many times credit card companies investigate and prevent it and return your money.
In case they don't, then the maximum risk is the the credit available but when it comes to debit card it's your life savings.
It is one of the reason I highly recommend start using a Credit Card from a young age only. Using a credit card and making the payments on time improves your credit score.
The Definition
In life you definitely want to own your own house and when you do that, you look forward to home loans. So, this is where the Credit Score plays a vital role. The bank shall check your credit score and if you meet the criteria then the loan will be approved.
Higher the credit score, easier it is to get loan. Generally above 750 is considered a good score.
There are many websites which provide services which some businesses need it monthly and they prefer only credit card. So if you own a business, you should definitely use your credit card for the recurring payments.
My words will fall short to appreciate this point. Rewards and cashback points which can be used to avail some amazing services and even transfer it in your account.
In fact, some banks credit card avails you the access in their Airport Lounges with a just a bear minimal amount and then everything from what you eat or drink is free, which occurs to be very beneficial when you are travelling international and huge time difference is there between your flights.
Reward is basically an encouragement that is provided by the bank, so that you use their card or you can say they use it as an attraction.
Supposedly, some unforeseen emergency like car towing or any accident happens and you don't have enough funds in your savings account you can always avail it from the credit card and have 50 days to repay it.
So, for emergencies a credit card is like a blessing.
The biggest drawback of credit card is, they impose hefty interest if you are not able to pay your bill or forget to pay within your due date then the interest rate varies between 30 - 40 percent. And this charge will not just be applied on the extended days but from the bill cycle date.
Let us understand it more clearly - your bill cycle date is from 20th to 20th of every month and due date is on 10th. You spent $200 on 30th of april, so the due date is 10 june. But you are not able to pay it off timely for some reason, still you manage it to pay within more 20 days i.e., 30th june.
Now you may think the interest will be imposed from 10th june to 30th june. But here's the catch, the interest will be apllied from 30th april.
From late payment begins the tale of Debt Trap, for the reason that more you are not able to pay more the interest accumulates and the debt goes on increasing, at last taking the form of a trap.
Credit Card is not for cash, a big big NO!! The moment you will withdraw cash through your credit card, the bank starts imposing interest. You don't get that 50 days period for payment in case of cash withdrawal.
Fix it in your mind, no cash withdrawal from credit card.
With the above two drawbacks this is inevitable. I have already mentioned the necessity of good credit score. So if you really want to own your very own house or car you have to maintain good credit score. It Should be your utmost priority.
This facility is provided by the banks only, there are two types - one being minimum payable amount debit and another being full amount auto debit.
It is highly recommendable to use this facility and set an Auto Debit in your bank account for timely paying off your bills and avoiding the interest.
Now this is more of a last resort rather than a solution.
If you really get into a bad debt trap then take a personal loan to pay it off.
Lets understand it elaborately - The interest rates that are imposed by the credit card company is 34%(assumimg) per annum. So for every $100 you are paying $34 extra and your sum has increased to some extent that it got out of your reach.
Take a personal loan and pay off the credit card bills. And then do the repayments for your loan which will be in much lower interest rates compared to your credit card interest, almost half interest rate)
So, that is it for today. Please comment below if it has been informative for you and follow 
Thank You For Reading
Be Safe - Be Healthy
Spread Love
