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What are the disadvantages of credit

what are the disadvantages of credit


Best Answer: Advantages of Credit Cards

There is an implicit guarantee of satisfaction with purchases because the customer is able to stop payment on a credit card account for unsatisfactory services. A number of companies guarantee all purchases over the internet.

Free purchase points and merchandise. This is becoming more and more prevalent as credit card companies boost the amount of incentives they provide customers to apply. The more you use your card, the more points towards future purchases you get.

Free airfare mileage points. Credit cards credit you a small percentage of each purchase towards airfare through affiliated airlines. These are like frequent flier miles. Its quite a significant incentive to charge particularly large expenditures on credit cards.

Establishing credit history and keeping a good credit rating. There are a number of key transactions in modern life which require a good credit rating. Getting a loan or dealing with a mortgage company is one of these. All sorts of other accounts now also include an investigation of your credit rating by the service provider. Credit cards are a perfect way to maintain a good rating.

Re-establish credit rating after bankruptcy or other financial mishap. Those with poor credit histories or those undergoing debt consolidation or credit repair initiatives often use credit cards to repair the damnge. Secured credit cards can be used in such cases where companies are reluctant to issue unsecured credit cards.

Also See: Differences Between Secured and Unsecured Credit Cards.

On the internet, credit cards give you the advantage of comparison shopping worldwide. It is the most convenient payment option for this scenario. As ecommerce becomes

more and more prevalent, this comes closer and closer to a necessity. Some companies have created services which maximize Internet technology in this regard to full effect.

The ability to get cash advances. This eliminates the need to go to the bank as customers can simply get the cash they need from their grocery store or other merchant. Note that credit card companies do charge a percentage of the transaction as a fee for the cash advance. But in cases of emergencies or where there is an upper limit to the credit card company's service charge, this is a good option to have.

Disadvantages of Credit Cards

The temptation to aquire too many credit card accounts can lead to losing track of payment details and deadlines. This can be disastrous. It can also lead to a false sense of security where customers continually transfer accounts to new services with lower interest. This rotating form of interest, if not properly disciplined and controlled can lead to balooning payments when late payments occur. When this happens, the interest rate on even the lowest APR credit card can suddenly explode.

Difficulty with understanding the fine print as relating to various fees and charges which may not be initially obvious. It is important to understand how the interest rates on credit card charges is calculated and it is particularly important to keep up with payments.

Depending on the credit card company, it is possible that falling behind with payments will result in an interest charge on all future charges regardless of whether or not you settle your bill during the grace period and by the normal deadline.

Category: Credit

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