Credit Card

Credit card usage has greatly increased over the past two decades worldwide. India, in particular, has witnessed a massive spur in the use of card transactions in the past few years, post-demonetization. With so many first-time Credit Card users coming on the block, making nitty-gritty involved in the card transactions available to the public is essential. In this article, we share a quick Credit card guide for anyone who wants to start using a card.

What is a Credit Card?

A Credit Card is issued by a financial institution, allowing you to use this plastic card to borrow funds from the merchant to make online and offline transactions. The institutions that give these cards set a pre-approved limit for the user based on their financial situation and assess the user's ability to pay back the funds borrowed.

While, at the outset, it might look easy to get access to a Credit Card and start borrowing money, it is essential to understand how the Credit Card industry works. You must know how to make the most out of the Credit Card facility while avoiding practices that can affect your Credit Score and reputation as a credible borrower.

Here are 10 things you should know while applying and using a Credit Card.

1. Types of credit cards

Several types of credit cards are available in the market today. The cards vary in limit, usage, discounts & reward points, and more. It is essential to understand the purpose of using a Credit Card and apply for it according to their lifestyle.

The best Credit Cards in India can be chosen based on where you want to use them. Private institutions like hotels, multi-chain stores, and restaurants have provided options for customers to get their own exclusive credit cards to be used in their outlets. In addition, financial institutions like banks offer Credit Cards with various features that can be used globally for any kind of transaction.

There are also Credit Cards based on your profession and education. Employees of corporations can avail of special SBI Credit Cards exclusive to these corporations that provide exciting offers and nominal interest rates. Companies provide unique cards to students as well.

2. Interest rates & fees

Whenever money is borrowed from a Credit Card, a grace period is provided during which any additional interest rate is not charged. If the user manages to return the sum borrowed within this period, no extra charges will be paid. However, if the time to return exceeds this grace period, the user will pay an interest amount set by the company. Interest is usually calculated daily, meaning a small percentage is calculated daily instead of charging a total sum of around 11-12% in a month/year.

Every month after the grace period, there will be a due date within which a minimum owing calculated by the Credit Card company has to be paid. Extra late payment fines will be applied if the payment isn't made within the due date. As a regular user, one has to be prudent not to let the amount borrowed out of hand as Credit Card interests are usually on the higher side, and keeping this debt under control is crucial.

How are interest rates calculated?

Interest rates are calculated daily. However, it is essential to understand how this daily interest is calculated. Every Credit Card company has an Annual Percentage Rate (APR) based on which one can calculate the daily interest rate. Comparing your calculations with the bills you receive every month is essential as it assures that the company hasn't charged anything extra or added an unreasonable fee that the user isn't aware of.

3. What is a credit score? How to maintain it?

A credit score is the points given to a user based on his/her previous loan transactions and current financial situation, based on which a company decides whether a user can be given a Credit Card. It helps verify the loan-repaying capacity of a person.

To improve one's credit score, it is essential not to default on dues. Any loan dues that one may have missed previously will affect their Credit Score, and the lower this score becomes, the more difficult it is to get a Credit Card.

Using your credit card often and repaying those loans on time will boost a good increase in one's Credit Score.

4. Making the most of Reward/Loyalty points

One of the main reasons people use Credit Cards is because of the reward or loyalty points the company provides for regularly using its card. Reward points are calculated every time a user makes a transaction. Each reward point amounts to a particular value of money, and when a user collects a considerable number of these points, they can be redeemed. It is essential to carefully analyze the rewards being provided by a company before applying for its Credit Card.

5. How to repay Credit Card debts?

Before you choose a Credit Card, it is essential that you first read the agreement document carefully. Once the agreement is signed, there is a legal contract that the user has provided consent to. The legal contract should mention all the related details such as credit limit, grace period, APR, interest calculation method, and additional fees that will be charged.

Once this legal contract is signed, payment can be made in two ways. A user can either pay all the money borrowed within the mentioned grace period to not accrue any interest or pay the minimum amount due for the month, including a specific interest amount calculated based on the terms discussed.

6. Credit Card comparison

Every bank/ financial institution has its own features/options when issuing a Credit Card. A user must understand these features and limitations and choose the Best Credit Cards in India accordingly. Here are some parameters apart from the basic pointers based on which one can compare Credit Cards in the market.
  • Introductory offers: Credit Card companies provide several lucrative offers to get people to use them. Offers like a 0% period for the first 6 months to 1 year are valuable perks you can make the most of.
  • Reward points: Reward points greatly benefit the user when used well. However, some companies provide overwhelming reward offers, and this is something that needs to be compared.

7. Legal rights to be aware of

As a Credit Card user,, one needs to be aware of several legal rights. There are several situations where a Credit Card user must understand his/her rights to dispute errors and fraudulent transactions. Every Credit Card company, like SBI credit Cards, has helpline numbers that you can reach out to and complain about the discrepancy in bills and transactions that users have issues with.

8. Reporting Fraudulent Transactions

There are several online thefts and hacking news that one might have read online. Many times, people find themselves on the wrong side of this problem and need the right action plan to deal with it. When one notices a transaction on one's own Credit Card that he/she has not been a part of, it is important to immediately report it to the authorities and block your Credit Card. For example, SBI Credit Card has an emergency helpline number that can help you solve this problem and get your money back.

10. First time Credit Card users

As a first-time Credit Card user, you can opt for Secured Credit Cards, Student Cards, find a Co-Signer, etc., and get hold of your first card with minimum hassles.