Credit Card

Credit card usage has seen a huge increase over the past two decades across the world. India in particular has witnessed a huge 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, it is important to make nitty-gritty involved in the card transactions available to the public. Here in this article, we share a quick Credit Cards guide for anyone who wants 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 issue 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 on the outset it might look easy to get access to a Credit Card and start borrowing money, it is important to understand how the Credit Card industry works. You must know how to make the most out of the Credit Card facility while staying away from 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

There are several types of credit cards which are available in the market today. The cards vary in terms of limit, usage, discounts & reward points and more. It is important to understand the purpose for which one will use a Credit Card and apply for the one according to their lifestyle.

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

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

2. Interest rates & fees

Whenever money is borrowed from a Credit Card, there is a grace period provided during which any additional interest rate is not charged. If the user manages to return the sum borrowed within this period, there isn’t any additional charges to 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 on a daily basis meaning a small percentage of interest is calculated on a daily basis instead of charging a total sum of around 11-12% in a month/year.

Every month after the grace period, there will be due date within which, a minimum due calculated by the Credit Card company, has to be paid. If the payment isn’t done within the due date, extra late payment fines will be applied. 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 on a daily basis. But it is important 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 on a monthly basis is essential as it gives an assurance that the company hasn’t charged anything extra or added an unreasonable fee that the user isn’t aware of.

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

Credit score is the points given to a user based on his/her previous loan transactions and current financial situations, based on which a company decides whether a user can be given a Credit Card or not. It helps verify the loan repaying capacity of a person.

To improve one’s credit score, it is important to not default on any 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 why people use Credit Cards is because of the reward or loyalty points that the company provides for regularly using its card. Reward points are calculated every time a user makes a transaction. Each reward point amount to a certain value of money and when a user collects considerable number of these points, they can be redeemed. It is important 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 important 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 which will also include a specific interest amount calculated based on the terms discussed.

6. Credit Card comparison

Every bank/ financial institution has its own set of features/options when it comes to issuing a Credit Card. It is important for a user to 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 0% period for the first 6 months to 1 year are useful perks that you can make the most of.
  • Reward points: Reward points are a great benefit to the user when used well. However, there are companies that 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 there are several legal rights that one needs to be aware of. There are several situations where a Credit Card user will need to understand his/her rights to dispute errors and fraudulent transactions. Every Credit Card company like SBI credit Cards have helpline numbers that you can reach out to and complain about 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 on the internet. Many a times people find themselves on the wrong side of this problem and do not have 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 their own emergency helpline number that can help you report 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, finding a Co-Signer, etc. and get hold your first card with minimum hassles.