Credit Cards might easily be the greatest dilemma of modern times. Find out why this instrument of credit is elusive to some while being met with scepticism by others.
Credit Cards might easily be the greatest dilemma of modern times. Often, something of a mirage for a credit-crunched generation. The conservatives (the 70s and 80s generation) have looked at it sceptically while millennials have adored this wonderful but sometimes elusive gateway to instant credit.
This leaves us with two questions: Why the scepticism and why the elusiveness?
Once upon a time, when the Credit Card was conceptualised in a far-away land by Ralph Schneider and Frank McNamara, it was meant to be an instrument of the rich and famous. It all started with a charge card and changed many forms, sizes, and textures to finally evolve into the mighty Credit Card of today.
The lineage, however, still lingers on. The bank (called CC issuing bank or issuer) would love to give a Credit Card to an individual with a good income, who works in a big, reputed organisation, who has a loan running and has a “clean re-payment record”. But what you want is seldom what you get.
The supply of green pastures is limited for banks. So, they have to build an algorithm to rate customers on the basis of many factors like income, employer, loans taken, repayment history, and more. This, in a nutshell, is your creditworthiness.
What’s more, banks help each other by sharing your creditworthiness with a central repository like Experian or CIBIL (private companies) so that other banks can drink from this elixir. In other words, benefit from a shared pool of information.
This creditworthiness or “Credit Score” is what makes Credit Cards elusive. A Credit Score is just like the reputation of a good husband; it takes years to build but a slight pass at your wife’s friend can ruin it forever. A late EMI payment can do the same damage. This score keeps on changing depending on your credit line, the average age of your credit lines, and even on the number of enquiries you make to try to avail credit. The more hungry you are for credit, the more difficult it gets for you to access it.
Additional Reading: What Is EMI And How Is It Calculated?
But, if getting credit is so complex, why even bother? Credit Card junkies, I being one myself, would love to tell you why. You, on an average, get a free credit period of 30 days (max. 50 days, min. 20 days) and the “Network” (e.g. Visa, Master Card) helps the card issuer bestow rewards and benefits (cashback, gifts, free airport lounge access, golf course access, flight tickets, hotel vouchers, restaurant discounts, and accommodation on the moon) on the Credit Card user. You get the drift. All these benefits are yours for the taking if you spend well and pay back on time. One can easily save 2-5% on Credit Card spending. So, if you spend anywhere between 5-10 lakhs, you could save 20k-50k a year, in addition to the discounts and cash back. Plus, for a credit virgin, it helps build a Credit Score. It’s like having a girlfriend before marriage- it helps you bear the hardships later on.
Additional Reading: 5 Irresistible Perks And Benefits Of Credit Cards
So, why would anyone be sceptical about it? Here, I will divide users in two categories. One that looks at credit as an attack on their financial chivalry – “Credit is for someone who does not earn well”, they say. Ironically, credit is easily available to those who do not need it.
The other group is made up of those who have not wisely consumed the credit extension provided by a Credit Card. They have paid huge interest, late charges, and got into a cycle of credit revolving. Revolving credit is like juggling knives while drinking beer in front of a hungry lion. Things generally don’t turn out well!
Of course, a Credit Card has the power to help you buy you stuff that your disposable income cannot afford now. But with great power comes great responsibility. Here, the responsibility is to pay your dues on time.
So, the only piece of advice I can offer is this – it’s important to fulfil your moral and social responsibilities but it’s even more important to never ever miss fulfilling your financial responsibilities!
If you think you’re ready to take on a Credit Card, BankBazaar can help you check your eligibility, give you customised offers and apply right away. Just click on the link below.