Individuals can apply for a credit card to pay the merchant for goods and services against a line of credit instead of paying from their cash deposits. Moreover, owning a credit card allows one to manage one’s finances during a cash crisis. It allows great freedom to cardholders and has a lot of benefits only if they use it judiciously.
Scroll down if you are new to credit cards and want to know more about them!
A financial institution issues a credit card to its clients. This card allows them to borrow funds to pay for goods and products. Later, they need to pay back the dues on time to avoid penalties and decrease their credit score. The credit card is also not linked to the cardholder’s bank account, so you can rest assured that the money is not getting credited from your account immediately.
However, each credit card has a credit limit, and the card issuer determines these limits. The determining factors include one’s income, credit score and credit history. Further, they consist of the card number, cardholder’s name, expiry date, CVV and cardholder’s name. Credit cards were introduced to make transactions cashless and smooth for users.
There are 10 different types of credit cards that you can apply for at a financial institution. These are:
Also Read: 10 Best Credit Cards For Online Shopping
The main features of credit cards are as follows:
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:
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.
You can use credit cards to make online or in-store purchases. The card’s details are sent to the merchant’s bank during this transaction. The merchant’s bank then gets authorization from the card’s payment network. Then the financial institution that has issued the card will have to verify the information and approve or decline the transaction.
Once the payment is approved, the transaction amount will be deducted from the cardholder’s credit limit. The cardholder will have to pay the final amount when the credit card company sends the bill. Moreover, the bill payment must be within the due date or grace period. In case of failure to pay back dues in time, the user is levied with an interest rate.
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.
Ans: 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.
Ans: 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
Ans: 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.
Ans: 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.
Ans: 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.
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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.