Is credit card a perk or a deterrent for your CIBIL score?

This was the question I posed to my husband when I wanted to do a little shopping as you all know festivals are always around the corner. Ever the accountant, my husband answered me in his official language of accounts that it may be a current asset or a long-term liability as per the person’s usage. 

Well, to put it in our human lingo it might be a benefit or a severe loss if misused. However, as every coin has two sides, we might as well just know the pros and cons of a credit card given it is a shopping season, and almost all e-commerce sites are offering a “no-cost EMI” scheme for your purchases through the credit card.

As usual, pros take precedence:

Helps in managing day-to-day or monthly expenses:

Credit cards can help you manage your monthly bills or for purchasing your day-to-day groceries and other essential items. It is also convenient in terms of carrying cash and even though debit cards do have the same feature, the advantage of credit cards is that you can use the money which is technically not yours.

Credit cards and credit score:

As my husband was telling me the credit card story, he also said to me about a certain quality of credit cards. While applying for loans, we are essentially asked for credit score. Say for example, a person does not have a required credit score, and he is not eligible for the loan. However, if a person purchases a product through a credit card and pays the EMI’s without a single default. Then there will be a boost in the credit score, and it also increases the creditworthiness of the person, i.e., he/she is eligible for a loan.

  • Rewards galore:

Currently, in the market, there is not a single credit card that doesn’t have a reward or loyalty program like complimentary lounge access at airports, cashback on the online purchase or 4 movie tickets at the price of 2, and so on and so forth. These options are quite lucrative and beneficial when we use the card judiciously and smartly.

Ok now let’s address the elephant in the room:

The cons of debit cards:

Status symbol:

Having a credit card nowadays has become a status symbol. The number of credit cards you have, the more the status. However, in fact, it is your liability rising not your wealth. Many people fail to see this connection and make very extravagant purchases which cut a deep hole in their pocket.

Going over your spending limit:

As credit cards have the enticing option of purchasing the product and then paying back in EMI’s, a person tends to spend over and above their repaying capacity and land in serious trouble of defaulting their payments. This leads to a drop in the credit score and the worst case scenario you will not be able to get a loan when you need them the most.

Hidden cost:

There is a hidden cost in every card like if you default your payments, you will find a charge of maximum interest of  3 to 3.5% plus the GST. If the payment is made after the due date, there will be a charge for that too. It is prudent to know all the fees and interests applicable before you apply for the card.

Going over the limit:

As most credit cards require only a certain minimum amount every month, the user will not feel the pinch in the pocket, but as time goes on, they will find that they owe a lot more than the amount spent them. A person must be careful of the purchases made by them and make sure that they are well within their repaying capacity.

The bottom line:

A credit card is not a luxury but a responsibility. We have to remember that we need to pay it off, not the person to whom we show our extravagant lifestyle or purchases. It can be used for an emergency or your monthly budget. But everything has a limit, so spend wisely and live a happy and debt-free life.

As usual Namaste, Au Revoir, Sayonara, and Vanakkam to my readers out there where ever you are and whoever you are.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.