A credit card is a narrow flat plastic or metal slab issued by a financial firm that allows cardholders to borrow money to pay for goods and services. Credit cards enforce the condition that cardholders refund the borrowed money, plus interest, and any other fees agreed upon.Pros and Cons of Credit Cards

The credit card provider can also offer cardholders a Line of Credit (LOC), enabling them to access money in the form of cash advances. Issuers typically pre-set borrowing limits on the basis of the credit rating of a person. A vast majority of retailers let the customer make transactions with credit cards, which remain one of today’s most common forms of payment to buy consumer products and services.

Advantages of Using Credit Cards

Credit cards present higher annual percentage rates (APRs) compared with other consumer loan forms. Interest charges are usually levied on the unpaid balance credited to the card one month after a transaction is made. By policy, credit card companies must give a grace period of at least 21 days before interest may begin to accrue on purchases. That is why it is good practice to pay off balances before the grace period expires.

It’s also necessary to consider whether the lender generates interest on a regular or monthly basis, as the former translates into higher interest rates as long as the balance is not charged. This is really important to learn if you are looking to shift your balance to a better, lower interest rate coin. Failing to switch from a monthly accrual card to a daily one could nullify the savings from a lower rate.

1. Perfect way to build credit

Your credit report is your track record of borrowing and refunding money. Every when you open a new credit card account, the issuer reports to a credit reporting agency about that transaction. They will also report if you fail to pay, or pay your monthly installments often late. Your credit history defines your credit score, which finally lets lenders know whether you are a good candidate for a credit card or loan and which parameters i.e. your interest rate and credit limit, to assign you. Solid credit can improve your quality of life, and if used responsibly, bring you closer to your financial goals.

2. Overtime Pay

You are able to pay off your balance over a certain period of time. To reduce fees and interest, it’s good idea to pay your credit card balance in full for each billing period. The exception is charging cards which allow you to pay in full in order to keep your card in good condition. If you need a product or service immediately, making payments over time can be helpful. That’s when, you do not have the cash at that moment.

3. More Secure Than Cash

Credit cards are commonly used even by people who have access to cash because they offer a different level of security. If you end up losing a credit card, or someone steals your information, it can be held by the credit card company to prevent fraudulent purchases. In addition, several credit card companies track irregular behavior and will alert you if anything is incompatible with your normal spending behavior.

4. Having an Interest Free Loan

Some credit cards provide an interest rate of 0% that allows you to borrow free of charge, provided you make your monthly payments. Even if you pay the minimum monthly sum, you can still borrow interest-free until the end of this term.

It would be best at this point to pay off your debt completely, otherwise you could be put back at the standard rate of the provider – which can be quite high. If you miss a payment or exceed your credit limit, you might also be put back on the standard rate. While interest-free credit cards can be a big advantage, they should still be sensibly used.

5. Receiving Rewards

Most credit card companies offer incentives for using them frequently, such as cash back or airline miles. When you use a daily spending credit card these incentives will easily add up. While many rewards cards come with annual fees, the incentives you can receive over a year will more than outweigh the expense of holding the card open.

6. Keeping Records

A credit card offers a valuable record of your spending through your monthly statement and online account, which will also be the case if you relied on a debit card to spend. However, some credit cards give summaries of the yearend which can be a great tool when you do your taxes.

7. Travel and Insurance Bookings

Reserving your flight or booking your hotel accommodation in today’s Internet age also requires a credit card to complete. If you don’t have one, your travel plans can be difficult to make. Most travel credit cards also come with a range of compensation and coverage options including travel accident protection, missing baggage coverage, car rental crash loss waiver, trip cancellation and more.

8. Safety Functions

Credit cards are safer than conventional checking methods. If somebody gains access to your checking account, they can drain it out. You will then have to wait until the bank files the fraud report and transfers the funds. When your credit card is stolen, you ‘re going to have to wait until the card issuer reports the fraud, so you’re not going to be flushed out.

Disadvantages of Using Credit Cards

1. High rate of interest and fees

Credit cards can cost you hundreds of dollars at the end of a year, depending on your credit card rate and how you use them. Knowing how compounding interest works and understanding how your billing period can help you organize payments, and reduce expenses or increase balances. Fees will be charged for making a late payment. Fees quickly add up, and they add up to your balance.

You must incur interest rates if you hold a monthly balance. Buying and cash advance interest rates can be as high as 22 percent Annually, and you can end up spending hundreds or thousands more than you originally paid on interest if you cannot make repayments every month.

2. Credit card Frauds and Scams

Using a credit card endangers you from credit card fraud. Thieves need not steal your card in order to get your information. They can break into the computer network of a business and steal personal information from thousands of clients, and then use it to make fraudulent transactions.

There’s a variety of fraud schemes targeting credit cards. Although you could be paid on your account for fraudulent charges, dealing with credit card fraud can also be a time-consuming and frustrating experience.

3. Overspending

This is the classic drawback when it comes to talking about the pros and cons of credit cards. Many people can quickly get carried away with their credit card, generating a debt beyond their ability to pay off.

Based on the credit limit, if you’re not careful, a new credit card will instantly allow you access to more funds than you had in the past, making it possible to over-spend. It’s important to invest just what you can realistically afford to pay back each month to avoid pushing yourself into a hole and potentially harming your reputation and financial health. When you don’t have a budget already, having one will help you keep on track so you’re not accumulating too much debt.

4. Debt and Credit Score

Every time you use the credit card, you generate more debt. Through paying off the balance every month you will keep the debt from growing but if you just make minimum payments and keep making expenses, the debt can rise rapidly.

Your credit rating is directly tied to how the credit card is used. If you run up big card bills and pay your credit card late, your credit score will start falling. Low credit scores have more impact than just your ability to buy goods and services; a low score can also affect your professional life. Poor credit scores decrease your opportunity to use credit when you need it most. It also tells companies and employers you might not be financially responsible.

5. Too many Credit card Applications can Harm your Credit

Your credit score is influenced by many factors, including payment history, current amount owed, length of history, new credit, and types of credit used. Although getting a couple of cards you use frequently and pay back on time will help you develop and boost your reputation, there is a limit on how many cards you can open fairly.

Every time you apply for a new credit card account, lenders will be able to review your credit history to determine your credit worth. Not only can your credit score be adversely affected by so many card applications, lenders can become suspicious if it appears as though you need access to a lot of credit and deny your application.

Accurately, at some point almost everyone has to borrow money to attain their financial goals. Credit cards are a perfect way to bridge the gap between paychecks or to fund big purchases which can be paid off over time. Credit cards, however, can easily erode your credit and financial health when used irresponsibly. Therefore, before incorporating credit cards into your financial plan, it is important to consider all the pros and cons.