Credit Cards

What is a ‘Credit Card’?

The arrival of credit cards has changed the way we look at the financial services world. Not only there is the convenience of not carrying cash whilst out for shopping or holiday or any other needs, there are a basket of other advantages that the credit card provides to its users. These include free credit period, points for every purchase that can be redeemed for gifts etc and goodies at the time of applying. No wonder, more and more individuals are using credit cards today.

A credit card is a plastic card (Dimension: 85.60 × 53.98 mm and a thickness of 0.76 mm) and is issued by a financial institution which helps the card holder to have instant credit on need. The credit card can be used to (1) buy goods (2) buy services and (3) take emergency cash when needed. All this can be transacted online or off-line.

All the credit, so availed, comes at cost which essentially the pre-defined interest rate notified by the card issuing institution.

One new phenomenon now-a-days is to have co-branded credit cards which tries to leverage the brand equity of the financial institution and another customer focussed organization. Such co-branded cards do offer additional benefits to the cardholders.

Visa, MasterCard, and American Express are three popular and recognized credit card variants in India.

Unlike debit cards, credit cards work on the principle of credit. For instance, individuals technically “borrow funds” when they swipe their credit card and are expected to repay the same when presented in their monthly bills. However, if misused, credit cards can create a nasty impact on the individual’s financial standing and push him to a debt trap.

A multitude of banks and financial institutions today provide credit cards to their customers. The number of credit cards that are provided also vary and each of them comes with specific benefits and features to suit the needs and requirements of myriad customers. Customers can apply for credit cards through different ways as long as they meet the eligibility requirement set by the credit card provider. These days, customers can easily get a credit card online as well as offline.

How to use a credit card optimally?

It is very easy to use a credit card. And as such it is very easy to go overboard with it. If used properly, credit cards do offer a flexible way to cover unexpected expenses or manage your financial needs.
When banks issue a credit card, they create a revolving credit account (called limit) for the card. Card holder is expected to repay the outstanding amount at the end of every billing cycle, else he would be liable to pay interest charges, which usually is steep.
Tips for effective and efficient use of Credit Cards:

• Always keep track of what and how much you are spending.
• Do not revolve your balances. Always pay the outstanding dues on your credit card on time.
• Set a sensible credit limit even though the card issuer may be giving you a higher limit.
• Always check your credit card statement in detail and see that only the expenses that you have actually incurred are billed.
• Always enable an SMS alert facility for expenses. This would help you to remain alert on the card spends and would help to report to the card issuer if you were to find an unrelated expense being charged.
• If not using, close your credit cards and take the acknowledgment from the card issuer to this effect.
• Spend on your Credit Card wisely. Paying only the minimum due, maxing out your credit limit, skipping payment due to a dispute and multiple rejected applications affect your Credit Score negatively.
• Revolving your credit is an expensive proposition, given the free credit period is not applicable once you have revolved your credit on the card.