Benefits of using Credit card compared to UPI or Debit Card

Consumers have different methods to pay for services or products they use from merchants/sellers. Currently, in India consumers can pay through direct currency, debit cards, credit cards, and UPI apps (Unified payment interface) like Paytm, phonepe . Now it depends on the consumer to decide which payment method gives him the maximum benefits and is easy to use.

In this blog, I will go through what is the benefit of credit card usage as compared to debit cards and UPI in long run. Let's understand this with an example of 2 people Ram & Sam. Ram always uses a credit card for all his spending in his daily life and Sam uses UPI for the same.

Ram is using a cashback card which gives him a minimum of 1% cashback for all his spending and if his monthly spend is 50K then he will be getting Rs 500 cashback at the end of each month and for the same spending Sam is using UPI app which reward him some scratch card which has some cashback at some time and "better luck next time" message for most of the transactions. So in this case Ram has a guarantee of 1% return every month and Sam has to depend on his luck to get some return every month.

As Ram is using a credit card he is building his creditworthiness with banks and this will be calculated by the credit bureau in form of a credit score. Month by month as Ram uses his credit card and pays back his credit due on time his credit score will rise. In the case of Sam, as he is using UPI bank doesn't know if he will be able to pay back if he takes any loan so his credit score remains the same as there is no loan transaction in his credit report.

As Ram has a good credit score he will get loans from all reputed banks at the lowest interest rate as the bank see Ram as a less risky consumer who will pay back all his loan on time and we should try to give him a maximum loan amount at less interest rate so that he will take a loan from our bank. In the case of Sam, his credit score is lower as there is no loan activity in his credit report. He will get a loan from a small finance bank with a higher interest rate as the risk on this customer is more as he has never taken any credit from the bank and paid on time.

Conclusion: So now you might have understood how credit cards help you to build your credit score and get a good loan amount with less interest rate at the time of a big purchase and also give you fix rewards if used for your daily spending. Also, make sure you pay your credit card due amount on time to maintain your good credit score.

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