A credit card is a payment card that allows cardholders to make online and in-store purchases on credit. Credit cards are issued by financial institutions based on card applicants’ credit history and other factors. Cardholders can use credit cards to make purchases up to a certain limit. The card limit is capped by the card issuer based on the cardholder’s credit history, income and other factors.
Eligible cardholders can apply for a credit card from a financial institution. The card issuer would then review your credit history, income and other factors to determine whether you are eligible for a credit card and what your credit limit will be. Once your application is approved, the issuer will offer you a credit limit.
You cannot make transactions beyond this credit limit, however, you can request your card issuer to increase the limit in case you’re not satisfied with the existing one. Now coming to using a credit card to make purchases, bear in mind that for every transaction made you are essentially borrowing money from the credit card issuer. The issuer pays the merchant on your behalf and you receive a bill for the amount you owe. You can check your credit card bill via net banking. Note that the card issuer will charge you interest if you don’t pay off the outstanding balance.
Credit cards can be subdivided into categories based on their type like cashback credit cards, reward credit cards, fuel credit cards, travel credit cards, etc.
There are different types of credit cards that you can apply for at a financial institution. These are:
The main features of credit cards are as follows:
Every credit card has a fixed credit limit which the card issuer determines. The cardholder can spend only up to the credit limit of the card. Moreover, there are two types of credit limits: one is normal, and the second one is revolving.
It is not always feasible to carry cash everywhere. Moreover, if you are travelling abroad and do not have that country’s currency in your hand, a credit card will come in handy. Also, ATMs may not be available everywhere, so credit cards have become a great cash alternative.
Credit card issuing institutions like banks and NBFCs keep records of all the cardholder’s transactions. This ensures proper billing, and users can also keep track of their expenses.
Credit cards, based on their types, come with offers and discounts. Based on the type of card, you can earn reward points, cashback, joining bonus, discounts, etc.
Credit cards come with a slew of fees and charges including joining fees, annual maintenance charge, cash advance fee, over-limit fee, late payment charges, etc.
Credit card cash withdrawals call for higher interest rates. In fact, the interest rate charged could be higher than that of personal loan interest rates.
Here’s a list of documents you might need while applying for a credit card:
However, certain customers are pre-approved for credit cards based on their business relationship with the card issuer. For pre-approved credit cards, you don’t need to furnish any documents.
Credit cards come with various charges and fees. As a user or potential user, you should be aware of all these charges. The various charges are:
Building credit history with a credit card can be a great way to establish your creditworthiness and improve your credit score. Here are some tips on how to do it:
The first step is to apply for a credit card. If you have no credit history, you may need to start with a secured credit card, which requires a cash deposit that serves as collateral for your credit limit.
Once you have a credit card, it’s important to use it responsibly. Make small purchases that you can afford to pay off each month, and always pay your bill on time. Late payments can hurt your credit score and result in late fees and interest charges.
Your credit utilisation is the amount of credit you’re using compared to your credit limit. Keeping your credit utilisation low can help improve your credit score. It is generally recommended to keep your balance below 30% of your credit limit.
Monitor your credit score to understand how your credit habits are affecting your score. Make adjustments to your financial habits accordingly.
You can avail a secured credit card against your fixed deposit account, a credit card against your savings account or a prepaid credit card if you wish to get a card without credit history. However, check with the concerned card issuer to understand the terms and conditions before applying for the card.
A credit card annual fee is an annual maintenance charge that is levied once a year. Some credit card issuers charge an annual fee as a way to offset the costs of providing the card and its benefits, such as rewards programs, travel benefits, or concierge services. However, some cards like lifetime-free credit cards don’t charge any annual fee.
Credit card interest is the amount of money that you owe on your outstanding balance, calculated as a percentage of your balance. Here’s how credit card interest works:
Everyone uses credit cards in their day-to-day life. However, they have a few advantages and disadvantages as well. Let us read more about the benefits of credit cards and their disadvantages.
Major advantages of using a credit card include:
Now that we know about the advantages of credit cards, let us learn about their disadvantages.
When you receive the credit card bill during each billing cycle, you will notice a minimum due or minimum payment statement. This is the minimum amount that the credit card company expects you to pay. However, you need to pay more than that amount to keep benefiting from the credit card facilities. Further, the excess amount depends from bank to bank and on the billing period.
If you follow certain do’s and don’ts of a credit card, you can use it without incurring any debt.
Owning a credit card can be a great tool for credit building. However, you should use it wisely because you might have massive debts if you overspend. You should also read all the terms and conditions presented by the financial institution before you apply for the card.
When you use debit cards for purchases, the money is deducted from your bank account. However, if you use credit cards for a transaction, you buy against credit which you will have to repay later.
Applicants require the following documents to apply for a credit card:
– Identity proof- Aadhaar card, PAN card, etc.
– Address proof- Utility bill
– Income proof- Last 3 months’ salary slip
– Passport size photographs
When you make the credit bill payments, the amount gets credited to your credit account, and the credit limit is reimbursed. Moreover, repayment of credit bills depends on the billing cycle, so your credit limit will also be monthly if you pay bills monthly.
Yes, you can withdraw cash from any ATM. However, these would attract a certain amount of charge that you need to pay in your next bill cycle. Hence it is advisable to know the associated fees and charges to avail this benefit.
Yes, you can reach out to your lender and submit a request for an additional card. These add-on cards are issued against the primary credit card. Please note, there could be additional charges that might be levied when you opt for an add-on card depending upon the lender.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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