Credit Cards & Credit Card Rewards: Myths and Reality

Time to read: 5 mins | February 20, 2018

Ask your dad if he had purchased stuff on credit in the yesteryears and the answer you’re likely to receive is: NO!

Traditionally, Indian consumers have been averse to buying much on credit. But that’s in the past; along with the many other customs and traditions that have undergone a change over the last couple of decades in India.

Today is the age of ‘plastic money’!

You don’t need to carry wads of cash if you own a credit card. They are convenient to use, and can earn you some money vide as spend (in form of reward points and cash-back offers). And the best part is you don’t have to drain your liquidity immediately, as you get a 40-50 days credit period. This very trait makes them desirable.

Nonetheless, there yet some common myths about credit cards. Here are 4 common credit card myths about credit cards:

1. Credit Cards and your financial health

Mind you, owning a credit card isn’t detrimental as long as it is used prudently; or else, it won’t be long before you fall paying your credit card dues a burden.

You see, credit limit is the maximum amount you are allowed to spend on your credit card. Before you use your card, know your credit limit. If you are a first-time card user or an avid spender, it is better that you opt for a card which falls within your means.

2. A credit card will negatively affect my credit score

This is a common misconception about credit cards.

With a disciplined approach a credit card can help you build a credit score. Also, if you have no credit history, then credit card usage can be a good start to build a credit history.

A healthy credit score can prove to be beneficial for any loan applications in the future. Hence, the convenience makes credit cards desirable to own and use them.

3. Avoid increasing your credit limit

Often people avoid increasing their credit limits thinking it will result into excess usage.

But if you use the credit card responsibly, the rise in credit limit should not hurt you; in fact, prove enabling as long as you use it legitimately knowing your means.

4. Have only one credit card

This myth is because people believe that one cannot have a credit card without incurring debt.

But the fact is that it does not apply to all. If you can pay your bills on time; and, you are organised and responsible, you can opt for cards which can be utilised different purpose.

These days most credit cards offer reward points or incentives on specific purchases or dining out that can be redeemed or used at a later date.

For instance, some credit cards are even custom made as per the spending habits of the card-holders.

So, analyse your spending habits to determine which card suits your needs best and opt accordingly.

Now let’s look at how to use the credit card prudently…

• Know the limit on the card

Choose a card with a low limit and moderately utilise the credit limit, say 30% - 40% of your overall limit. All credit cards come with a ceiling limit.

• Pay up before the end of the credit settlement cycle:

One of the benefits credit card companies provide is a credit period (of 40-50 days), which means, if you make full payment before the payment cycle ends, interest won’t be levied. However, if you fail to honour payments within the due time, you are likely to pay interest.

Hence, always make it a point to settle your credit card dues––ideally the total outstanding––before the due date so as to keep your credit score high.

• Avoid availing the grace period

Some credit card companies/banks may offer a grace period to settle your dues. Ideally, you shouldn’t wait this long to settle your credit card account, or it could dampen your credit score, and in turn, weaken your eligibility for loan proposals in the future.

• Secure your card details:

While using your credit card to make online purchases, for security reasons do not store your card details online as they can be misused if the merchant site fails to protect the secrecy of your data. Always use the two-step authentication process and don’t allow any ‘fast-forward’ transaction.

Unless you see “https://” on the payment page, don’t enter any payment/personal/card details. By viewing the site information, you can also check if the communication between you and the website is private and protected. Be careful when using your card at a merchant outlet as well.
Now that you in detail about credit cards, let us see how it’s reward benefits work:

Axis Bank cards offer reward points or incentives when you make a purchase and these can be redeemed or used at a later date. Axis eDGE Loyalty Rewards has been carefully crafted to ensure that you get a host of wonderful earning and redemption experiences.

Moreover, some credit cards allow you to redeem reward points at specific shopping centres. Opting for such a credit card may be prudent if you prefer shopping at these outlets. Or if you have a favourite multiplex, consider cards which give you similar benefits and facilitate savings. Analyse your spending habits and opt in for a card that’s most advantageous to you.

To Conclude:

Credit cards aren’t just about scary debt-traps and never-ending interest charges. If a credit card is used wisely, it can prove to be much more beneficial as you can buy goods and avail for services without even paying immediate cash for same.

Owning a credit card can be a convenient facility as long as you have the means to pay off your dues. Controlled credit card usage enables an individual to live a comfortable lifestyle without jeopardising your long-term financial wellbeing.

You can make the best of the reward points and facilities to your advantage. Not all credit is bad, if used prudently, a credit card can facilitate you to earn even while you spend.

Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm known for offering unbiased and honest opinion on investing. Axis bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.