The Credit Card - A Most Valuable Tool For Building Credit - PowerPoint PPT Presentation

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The Credit Card - A Most Valuable Tool For Building Credit

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Title: The Credit Card - A Most Valuable Tool For Building Credit


1
The Credit Card - A Most Valuable Tool for
Building Credit
2
  • A credit card is a small plastic card issued to
    the consumer by a financial institution such as a
    bank or credit union. The card issuer creates a
    revolving account with a line of credit to the
    consumer. The cardholders can purchase goods and
    services or receive a cash advance, until they
    have reached their predetermined credit limit.
    The merchant who accepts credit card payments
    receives the money from the bank issuing the
    card. The cardholder eventually repays the bank
    through regular monthly payments. If the entire
    balance is not paid in full, the issuer usually
    charges interest on the unpaid portion.

3
  • Credit cards can be an extremely valuable tool if
    used correctly. However, there are also risks for
    those who lack self-discipline for the debt they
    cannot repay. Although when used responsibly and
    with the correct intentions, the card can provide
    significant benefits. Here are some of the
    attributes of owning a credit card
  • Convenience
  • The credit card is a flexible payment tool
    accepted at over 30 million locations worldwide
    as it has become a good alternative for cash. On
    many occasions, situations arise where you need
    more funds than what are immediately available.
    Emergencies such as home or car repairs, medical
    expenses, travel for a family crisis, are
    attainable instantly with a card. Such credit
    spending should be done with a short-term
    intention with timely payments to avoid
    accumulating debt.

4
Establish and Boost Credit History
  • Paying your bills in full and on time indicates
    responsibility which helps to boost credit
    rating. A good credit rating also helps in many
    other situations, such as, obtaining a loan with
    a low-interest rate. More than likely, your card
    company will also approve a higher credit limit.

5
Borrowing Interest Free
  • Credit cards allow you to use the bank's money
    interest free within a grace period. Therefore,
    payment for purchases on the card is due at the
    end of the pre-determined period. Paying your
    balance in full each month enables you to receive
    an interest-free loan month after month.
  • In order to entice new customers, card issuers
    frequently create 0 interest rate promotional
    offers for credit card purchases and cash
    advances. The only limitation is for the credit
    loan to be fully paid back at the end of set time
    period. If used wisely, one can use the credit
    card 0 interest loan to pay off higher interest
    rate debt. As long as you have the
    self-discipline in controlling spending, this
    type of financing can be a valuable tool for
    money management and budgeting.

6
Tracking Spending
  • As the credit card issuers provide detailed
    monthly statements on purchases, they allow you
    to keep track of your spending with ease. For
    business owners, the summaries are a valuable
    tool for tax return preparation, as they provide
    information for allowable tax deductions.
  • Rewards and Benefits Many companies offer rewards
    and cardholder benefits to their customers.
    Loyalty programs have been designed to encourage
    cardholders to use one specific card. As the card
    is used, the cardholder accumulates airline
    miles, hotel chain points, cash back points etc.
    that a cardholder can redeem for products or
    services. For those who use their cards
    frequently, the rewards can be quite substantial.
  • In addition to loyalty program rewards,
    cardholders also reap benefits that include
    complimentary car rental insurance, travel
    insurance or overseas health insurance.

7
Consumer Protection
  • For mail-order purchases that are not received,
    or turned out to be defective, the charge can be
    disputed with the credit card company. The burden
    of proof lies with the sender therefore, the
    consumer has limited financial liability. Such
    consumer protection provided by the credit card
    company is not available with most debit cards or
    when paying cash.

8
Protection from Fraud
  • Carrying cash can be unsafe, as it can be stolen
    or lost. The lost cash is rarely replaceable.
    Instead, a misplaced or stolen credit card can
    simply be inactivated by the card issuer and a
    new one reissued. As for any fraudulent charges,
    they can be challenged. Upon investigation, the
    charges are usually forgiven or refunded.

9
Responsibilities of the Credit Card Holder
  1. A Cardholder can maximize their benefits by
  2. Paying on Time - On time payment is the best way
    to avoid late fees and penalty interest, and at
    the same time, boost credit score. The simplest
    way to ensure on time payments is to set up an
    automatic bill pay system.
  3. Paying more than the Minimum Due - If balance can
    not be paid in full, it is vital to pay as much
    as possible over the minimum.
  4. Not Using Your Credit Cards' Upper Spending Limit
    - Having the maximum amount charged can lead to
    recurring fees and interest expenses. Maxing out
    the credit card also leads to a The rule of thumb
    is to keep the card balance below 30 of the
    limit. By spreading purchases between several
    credit cards, you can manage the 30 limit with
    minimum difficulty.
  5. Avoiding Unnecessary Fees - Many credit cards
    charge various fees late payments, over-limit,
    cash advances, transferring balance or returning
    check. Read through your credit card agreement to
    be fully aware of all the fees. Avoid these
    transactions as much as possible.

10
Change of Terms and Conditions
  • Credit card companies frequently change the terms
    and conditions. Such changes often include fee
    structure, interest rates, billing, and other
    features. More often than not and to your
    detriment, these modifications benefit the card
    issuer. Be aware of these changes as it can help
    you utilize the card more efficiently. For
    example, a cash advance fee increase could prompt
    you to use a different card for cash advances.

11
  • As described, owning a credit card can be very
    advantageous. However, if not handled properly,
    it can become a liability, such as
  • For non-timely payments, a credit card loan
    carries a higher interest cost than other forms
    of credit
  • It can create poor credit scores due to late
    payments
  • It allows you to have a false sense of security
    thus accumulating more debt than manageable
  • It complicates your living with complex terms and
    conditions
  • It is critical to always use your credit
    responsibly. Credit problems such as extending
    credit limits to the maximum can result in a poor
    credit scores.

12
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