Invest In India

Pros and Cons of having Credit Cards

March 13th, 2010

Malvika

Credit Cards are issued by banks and financial institutions. The card holder will be allowed a maximum credit line. The card holder can use it to purchase whatever he wants from the shops where the card is recognized. The price will be deducted from the card holder’s account on the due date, if the bill does not exceed the credit line. If it exceeds, he or she will have to deposit the excess in the bank before the due date or within the grace period allowed. If not, interest will be added to the balance amount for the period it stays unpaid.

Pros

No need to carry money on person always. Fraud protection is another merit of credit cards. In some countries the shop and the card issuer are jointly liable for purchases of defective products. Enhanced product warranty, free loss and / or damage coverage for new products are also advantages of credit card system. In addition to these virtues a good customer – one who pays his dues on time – can make use of the free interest period, the reward points and discount offers that comes along. The company may increase the credit limit for such customers.

Cons

Though introductory interest rates will be low for a period 6 to 12 months, it will increase drastically after that period. In the event of missed payment the default rate of 20 to 30 percent is calculated. The card issuer can increase the interest rate arbitrarily. A customer, who is unaware of these stipulations, can find himself in great debt, if he misses even one payment.

How many are enough?

As long as you are a responsible and level headed person there is no problem in keeping two or more credit cards. If you strictly follow the rule to pay before the due date there will be no hassles. To be on the safe side two credit cards will do, one for small, frequent purchases and the other for big purchases occasionally. Eventually, it becomes clear that it is not the number that counts but the way the credit card is used.