Credit cards are a convenient product for managing income and expenses, but for those who do not know how to use them, they can turn into an expensive and risky product.
Before applying for a credit card, it is important to consider the advantages and disadvantages below in order to decide whether it is right for you.
What are the advantages of using a credit card?
It is safer than carrying cash
If you lose your cash or your wallet, there is a high chance you will lose that amount for good. The likelihood that someone could use the credit card inside your wallet, however, is lower. You can also reduce this risk further by cancelling the card quickly. Banks generally have security procedures in place to protect the cardholder if the card is lost or stolen, or if it is used for fraudulent transactions. For this reason, even if you lose your card, you can consider yourself safe as long as you notify your bank.
It improves your credit score
Whether a credit card statement is paid on time, whether the full balance is paid instead of just the minimum payment, or whether the card debt goes unpaid, is reported to the Credit Bureau (KKB). Paying off the card debt raises the customer's credit score, while failing to pay it lowers the score. Keeping track of the card debt and paying it regularly will raise the credit score.
You don't have to pay interest
If you pay off the entire balance by the statement due date, no additional amount is added to your card debt. This means that, aside from the annual card fee, using a credit card will not create any other card expense. In fact, you can even request that the annual fee be cancelled so that it is not charged at all.
It lets you earn points
When you make a transaction with your credit card, a certain amount is credited back to the card as points. In addition, transactions made under loyalty programs may earn points at several times the normal rate, or may allow you to earn extra promotions.
You can request a refund for a transaction you are not satisfied with
If a problem occurs with a purchase made using your credit card (a defective product, a product that was never shipped, etc.), you can easily request a refund for that transaction through your credit card bank. Your refund request will be reviewed by the bank, and if you are found to be in the right, the relevant amount will be refunded to you.
You can make currency-independent transactions
For purchases made abroad with your credit card, you can shop without any trouble no matter what currency the product is priced in. For this type of transaction, banks generally apply a certain margin to the currency conversion, so this is something you should watch out for.
It provides emergency access to credit
If you want to buy a product but do not have enough cash on hand, you can still pay with your credit card. The only requirement is that the card's available credit limit be higher than the transaction amount. However, keep this in mind: transactions made with a credit card are a debt that must be paid, even if payment falls due at a later date. Paying that debt in full and on time is essential.
It often comes with free services
By using a credit card, you can benefit from many discounts and perks you could not get when paying cash, such as travel insurance, free roadside assistance if your vehicle breaks down, free flight offers, and extra discounts for credit card payments at restaurants.
You can extend the term of your debt
If your credit card due date has arrived but you do not have enough cash on hand to pay off the card debt, you can call your bank and defer your card debt by one month at rates more favorable than the standard ones.
What are the disadvantages of using a credit card?
If you know how to use a credit card, it is a very valuable payment tool; if you don't, it can turn into a product that gives you a headache.
The disadvantages of credit cards can be listed as follows:
High interest/penalties paid due to delayed card debt payments
If the full statement balance is not paid (even if only the minimum payment amount is paid), interest and penalties accrue on the remaining debt. For this reason, paying off the card debt is something you need to pay close attention to.
It can lower your credit score
A credit card is essentially credit extended to the customer for a certain period. For this reason, just like loan repayments, credit card payments and delays affect your credit score as well. To avoid having a future loan or credit card application rejected, it is beneficial to make your payments on time. Otherwise, your credit score drops, and you won't be able to take advantage of credit when you need it.
Credit card fraud
Credit cards are not only used at POS terminals and ATMs; they are also used in e-commerce transactions. Because of this, there are a great many fraud cases aimed at stealing card details. You can request a refund for this kind of unauthorized transaction from your bank, and the refund may well be made, but the refund process can be exhausting and frustrating. For this reason, when using your card, you should make sure your card details are not being captured and that your card is never swiped through another device that could copy its data.
Cash advance fees and rates
Banks other than participation banks do not just open the credit card up to the amount set for the customer; they also set a specific cash advance limit for that customer. When a customer wants to withdraw cash using the credit card's cash advance limit, a cash advance fee of roughly 3% of the total transaction amount will be charged. Unless you are in a tight spot, it will be to your benefit not to withdraw cash advances on your credit card.
Card Fees
Banks generally charge an annual fee on credit cards. Although you can object to these fees and have the card fee cancelled, if you let it slip by you will end up paying it. Banks are required to offer their customers at least one credit card product with no annual fee. If you want to avoid this fee, you can opt for a no-annual-fee credit card.
Merchants passing the POS commission on to product prices
When a transaction is made with a credit card, businesses often pass the POS commission charged by banks on to the price of the product (a surcharge). Although this practice is not legal, it is still applied by some merchants. In that case, you end up paying more.