Bursting a Myth: Millennials aren’t opting for credit cards

Jul 2018 | Team Rubique

Credit cards are simplifying monetary transactions in India. These cards are a revolving line of credit that allows the user to incur expenses up to the specified credit limit and repay the amount at a later date. If used correctly, credit cards can be a powerful financial tool that helps build creditworthiness. However, millennials today are wary about using credit cards due to their fear of falling into debt.

Despite this, the usage of credit cards among Indian consumers has seen a steady rise over the last five years. One contribution to this factor is the ability to submit a credit card application online. Per reports by the Reserve Bank of India, there were a total of 29.8 million credit cards issued as of the fiscal year end 2017. This number is the highest that India has ever seen. However, this is just a 1.8 million increase when compared to the 28 million cards issued till 2008.

How Do Credit Cards Work?

A credit card works on the same principle as a line of credit. It can be used for making purchases, taking cash advances, and paying off monthly bills. Depending on your monthly income and creditworthiness, the bank will be able to decide your credit limit and credit card eligibility. To get the best deals, you need to compare credit cards for features such as grace period, interest rates, joining offers, etc.

Importance of Creditworthiness

Creditworthiness is determined by analyzing an individual’s history of borrowings and repayments. This calculation can be obtained through your CIBIL score. A CIBIL score is a three-digit summary that can range anywhere between 300 to 900 and is printed on your Credit Information Report. The closer your score is to 900, the higher your chances are of getting approved for loans and other forms of credit.

This report takes into consideration all your past liabilities such as your previous debt, secured and unsecured lending history, defaulted repayments, and credit utilized till date. While many websites provide a detailed report for a minor fee, you can also check your CIBIL score online for free to evaluate what your financial eligibility is.

Having a strong credit score is important in case you need to avail any credit in the future. Regardless of the type of loan, you may require, your credit score is the first parameter that any bank or financial institution will check. This is because your creditworthiness determines the sanction amount of your loan as well as the chances of potential defaults.

Advantages of Owning a Credit Card

Owning a credit card allows you to enjoy multiple benefits. Some of these are:

Global Acceptance

Worldwide acceptability is a strong feature of credit cards. Nowadays, you can swipe your credit card to make purchases any pay utility bills from anywhere across the globe. This reduces dependency on savings and cash, especially during emergency situations.

Credit Score Improvement

If timely repayments are adhered to, credit cards can actually contribute to improving your credit score. They provide an important insight into your borrowing decisions, consistent repayments, and overall responsibility towards debt. In the long run, the way you handle your credit card will boost your lending eligibility.

Reward Points 

Accumulation of reward points is another advantage of owning a credit card. Every time you use your card for a transaction, reward points get accumulated in your account. These points then get converted into cash and can be used as discounts against upcoming bills.

Cost Effective Lending

In case of emergency monetary requirements, a credit card is the most convenient and cost-effective short-term lending option. This is because the grace period provided for repayment helps you gather your finances without having to incur any interest expense.

EMI Eligibility

EMI scheme is a highly attractive feature of credit cards. If you are planning a big purchase such as a television, refrigerator, etc., then using your credit card lets you convert the entire amount payable into easy monthly installments at a small convenience fee. This lets you repay the amount across a period of time, say, 6 months, instead of having to pay it all at once.

Considerations To Keep in Mind

Demonetization gave rise to the use of credit cards in India. However, a lot of Indians are still apprehensive to use them.

Be Careful With Expenses

One consideration to keep in mind if you take a credit card is to never incur more expenses than you can comfortably repay. But just like a credit card can increase your credit score if used properly, it can also damage your score if the repayments are not done in a timely manner.

Don’t Miss Repayment Deadlines

Credit card companies provide e-statements, payment reminders and SMS confirmations about your outstanding balance so that you don’t miss the payment deadline. Using a credit card wisely will help you balance your repayments without incurring any extra charges.

Say No to Multiple Cards

It is always best to have one, or a maximum of two credit cards. When you apply for multiple cards, it becomes difficult to keep track of repayment timelines. Chances are that you may end up missing out on a couple of payments. Further, it is also possible that the use of so many cards will encourage you to incur higher expenses that your income may not support.

Be Cautious of Loans and Advances

To the extent possible, avoid taking loans or advances against credit cards. Opt for a personal loan instead. This is because loans on credit cards have very high-interest rates which will increase your cost of funds.

The Future of Credit Cards in India

Digital features such as mobile tracking, online repayments, and e-statements are making credit card transactions easier than most other forms of payment. With responsible spending habits and a track on repayment schedules, anyone can handle a credit card without feeling financial burden. All this requires is a little planning and a control over unnecessary temptations.

Studies show that the Reserve Bank of India and commercial banks face an annual loss of over INR 21,000 crores due to illegal cash operations. The need for Indians to shift over to digitization looms large. In lieu of this, it is safe to state that credit cards will play a large role in promoting India’s movement towards a cashless economy.