Last Updated on November 25, 2021 by Admin
A credit card is issued by the banks or other financial institutions/agencies to their customers which is made of plastic or metal and a thin size rectangular shape card which allows cardholders to make hassle free payment towards purchase of goods and services to various merchants who accept payments through credit cards. Payments can be done without keeping hard cash money in purse/wallet or without using money from own bank account at the time for buying goods and services whether online or offline.
Credit cards are customized and personalized for customers and it consists of name of customer, logo of bank, logo of VISA, Mastercard, American Express, RuPay or other credit card company, then 16-digit card number, date and month of issue & expiry/validity of card, category of card, golden or silver chip etc. embossed on frontside of this card.
What is the use of Credit Card? Why we need credit card?
In this digital world, credit cards play very important role for doing transactions or payments. Credit cards are mostly used on various e-commerce platforms, websites, online shopping, petrol pumps and food orders, to add money to various e-wallets like Paytm, PhonePe, Mobikwik, Gpay etc.
Credit card holders can borrow money in the form of cash withdrawals from bank ATMs as per eligible cash limit set by the banks on respective credit cards. This is most popular mode of doing payments for goods and services by using credit limit available on credit card.
Difference between Credit Card and Debit Card
Debit cum ATM card is issued by banks and directly to linked to the bank account of the customers. Debit cum ATM cards are normally issued alongwith opening of new bank account. As and when customer do any transaction or cash withdrawal from ATM through their debit card then money is directly debited from the bank account immediately upon such transactions.
But a credit card allows you to do any transaction based on eligible credit limit and you may pay later on due date as per the statement issued in next month so credit card is not linked directly with the bank account of the customer. You may have bank account in one bank and credit card issued from another bank. You have own choice for applying credit card from any bank in India.
Types of Credit Cards
Visa, Mastercard, American Express, RuPay and other card companies tied-up with various banks and other financial institutions. Then banks etc. issue various category of credit cards to their customers and such credit cards attract customers by offering benefits like cashback, airline miles, bonus points, access to premium lounges at airports, discount on hotel rooms, gift vouchers on purchases. These types of credit cards are generally referred to as rewards credit cards.
Normally credit cards are categorized in Silver, Platinum, Gold, Diamond, Infinia, PetroCard, International and other brand names etc. They are also purpose specific like shopping cards, petro/fuel cards, Dinning club cards, Travel, Airline, entertainment, business cards, cash-back cards etc.
Credit limit is setup according to category of each card. Many national retailers provide branded versions of credit cards with their business brand name embossed on the cards to generate customer loyalty.
Banks issue co-branded major Visa, Mastercard or RuPay credit cards to their customers on the basis of financial creditworthiness & income status of customers.
Some cards charge convenience fee ranging from 1% to 3% of transaction value at the time of swiping or using cards for those transactions and this fee may vary from merchant to merchant. So you should check this first and be assure that you don’t bear the unwanted cost on using card at such places.
How do Credit Cards work?
Although a credit card is provided by the banks and other financial institutions by fixing card features and terms and conditions on these cards such as credit limit allowed, interest rate, minimum due amount, reward points, etc., the payment gateway is facilitated by Amex, Visa, MasterCard and RuPay.
Customers swipe/use these credit cards to purchase goods and services, pay their utility bills, car fuels, shopping, foods, travel tickets, entertainment or other day to day expenses. Then every month credit card statement is generated and sent to card holders.
Cardholders are supposed to pay full payment of credit card by the due dates though their bank accounts. Normally customers enjoy free of cost credit period of 30 to 45 days by using credit cards otherwise if any body use ATM cum Debit card, then payment is automatically deducted from the bank account of the user immediately on transaction time.
Benefits of using Credit Cards
Following are the most common benefits of using a credit card: –
1.Ease or Convenience of making payment: Most of businesses becoming digital, now carrying cash is no more a necessary in day to day life. A credit card allows to make all kinds of transactions with ease and convenience and it is hassle free mode of payment special for digital transactions.
2.Best friend for Financial Emergencies: Emergencies cannot be avoidable and some times there is no helping hand to cope with such financial emergencies. At that time credit cards proved to be our best friend when we are short of cash or bank balance and we need to purchase something on urgent basis.
3. Benefits of Reward Points, Cashback, Discounts and Welcome Gifts: Customers get lot of welcome benefits, it includes e-gift vouchers, huge reward points, gift vouchers, reward points, cashback, discounts and offers on various purchases. Using credit cards can indeed save some money for you.
4. Access to luxury Airport Lounge: Premium credit card holders get access to luxury airport lounges wherein they can relax and enjoy unlimited free food and beverages. Certain credit card companies allow add-on cardholders to enjoy the same benefits.
5. Free Travel Insurance benefits: Some Credit cards which are exclusively designed for travel purposes and other premium cards provide free travel insurance which can provide a cover against air accidents, baggage theft or loss at foreign countries, overseas emergency hospitalization, etc.
6. Special benefit services: For the purpose of travel abroad or staying in hotel, you can customize your travel and entertainment activities. Reservations for airline, booking hotels, etc., can easily be done by using the concierge services provided by the credit card companies.
7. CIBIL Score: As you know that CIBIL score is an important criterion to get any loan from banks etc. Using credit card and keeping good payment track record helps to build a good credit score in cibil report. A loan may have a predetermined tenure and you will have credit history only for that particular period. But when you use a credit card, you have a long credit history and your credit score soars high with a positive track record of repayment.
8. No Cost EMI: People who wish to purchase accessories, gadgets, appliances and various other household items can buy them using a credit card and pay for them in EMIs without any interest rate. Many find this a lucrative option to purchase their most favorite and essential items online. No Cost EMI is provided to only credit cards that have tie-up with the e-commerce website.
9. Lifetime Free Credit Cards: Most of the credit card companies issue lifetime free credit cards and there is no annual fee charged on the card.
10. Keep Track of Your Expenses: On the basis of monthly transactions, you can keep a track on your monthly spends and plan your budget accordingly.
Eligibility Criteria to apply for credit card
If you are above 18years of age, you have stable and regular income from salary or business /profession or any other sources, there is no negative remarks in CIBIL report and satisfactory credit scores then you must receive phone calls, promotional emails, or SMS etc. from banks/credit card companies urging you to apply for a credit card. If not this is the case with you then you can simply contact you bank branch for getting the credit card.
How to apply for a credit card?
You can apply for the card through the following ways.
- Directly contact to your bank branch and submitting necessary KYC documents alongwith credit card application.
- You can visit the official website of the bank and submit your request in credit card section by fulfilling all the necessary requirements of the bank.
- SMS: Mostly banks also provide SMS facility to their customers. Even they do regular promotion for that. So you can send SMS to the respective bank regarding your new credit card request.
- Customer Care: All the banks have toll-free numbers to contact the customer support team to enquire about any queries. You can contact them from your mobile and get help to proceed with the application process.
- Mobile Banking: Each bank has a mobile app that provides all updates and services. You can download the app to apply for a credit card.
How many credit cards should a person have?
There is no thumb rule about how many credit cards an individual should have. It depends on factors like income, monthly expenses or usage requirements and ability to manage to make timely repayments on multiple cards before due dates.
If you are new to credit cards, then it is good to use one card for some time and get used to the payment method. Once you are comfortable and full confident about managing multiple cards then you can take on additional cards as per your requirements.
Banks usually offer add-on cards on the basis of good track record of their customers. More the cards you have more the credit limit benefit you will get.
Top 10 tips for using credit card smartly
If you are new to credit cards, then it become very important that you maintain good credit history and using the credit card wisely to avoid any damage to your credit profile. Here are some smart tips to use the card and to ensure that you remain financially healthy:
- Always pay your credit card dues in full and on or before due dates. Put reminders on your mobile because every single late, missed or incomplete payment is reported by your bank to CIBIL/credit bureaus. This will give negative affect on your credit score in your cibil report.
- Do not prefer to pay minimum due payment and balance to next month which will involve paying high interest rate @30% to 40% p.a.
- Don’t buy things unnecessarily which you cannot afford, even though you have easy access to credit cards.
- Don’t use full credit limit on your card. The less you spend, the better it is for your credit score. It is recommended that only use less than 50% of your credit card limit.
- Don’t use credit card at an ATM for cash withdrawal unless you have some emergency otherwise you have to pay huge amount of interest on cash withdrawal transactions.
- Keep your credit card slips so you can check it against your monthly credit card statement. Any discrepancies or mistakes should be reported immediately to bank as they can be reversed.
- Keep your credit card details and your card issuer’s phone number with you in a safe place so you can immediately report any theft or misuse of your card.
- Read all the terms and conditions regarding usage of your credit card so that you are aware of all the interest charges, late fees, finance charges and other terms applicable on the card.
- Never share confidential information of your card with anybody including bank employees specially CVV number, PIN and mobile OTP at Whenever cost because sharing such data may lead to fraud with you.
- Whenever you swipe credit card at any petrol pump, store, shop, restaurant, hotel or any other place then be careful and not handover the card to any unknown person. Swiping of card must be done in your presence to avoid any data theft or cloning of your card.
How credit cards are protected against fraudulent transactions?
According to RBI guidelines, the customer will have no liability in case of fraudulent transactions or if there is negligence on the part of the bank even if the fraudulence is not reported by the customer. In case of a third-party breach, the customer must inform about the unauthorized transaction within 3 working days to avoid any liability. However, if the customer informs after 7 working days, then bank will free to check and determine customer liability.
Now days banks are providing additional level of security along with PIN number. Now you have a microchip on your credit card, you need to input a PIN number as well for the transaction to be approved. Your PIN number is known only to you. So, if your card is stolen, it cannot be used for fraudulent purchases as the payment will not be approved without the PIN number.
Credit cards are now upgraded with EMV chip cards. EMV means “Europay Mastercard and Visa” who developed this technology. In a normal card, all the user data is saved on it and it remains forever.
In an EMV card, fresh user data is created each time the card is used for any transaction. This prevents fraudsters from copying the user data and creating a new card with the same details. EMV cards protect the cardholder against phishing, skimming and vishing.
FAQ about Credit Cards
1. What is the best way to get a credit card?
Answer: You can easily get quick approval on credit cards from the bank where you maintain a salary or savings account.
2. Can I get a credit card without a credit score?
Answer: Yes, you can be eligible for a credit card on the basis of steady and regular source of income.
3. How many credit cards can a person have?
Answer: There is no restrictions, a person can have as many credit cards possible. But it is very important to ensure timely payment of cards before their due dates to avoid late payment fine & interest rate.
4. What to do if there is an unauthorized transaction on my credit card?
Answer: It should be reported to your bank within 3 days of the fraudulent transaction by calling at their customer care support phone numbers
5. Can I use my credit card in foreign countries?
Answer: Yes, nowdays most of the banks issue international cards to their customers.
6. What is the CVV number on a credit card?
Answer: CVV stands for Card Verification Value which is printed at the back side of the credit card. It has to be kept secret as it’s used for various online transactions.
7. How can I redeem my reward points?
Answer: Reward points can be redeemed any time by visiting the official website of the bank. You can either redeem the points for gift items that are available on your card or convert it to cash if you have that facility available.
8. Which is the best credit card with no annual fee in India?
Answer: Every bank has variety of credit cards in different categories. You may choose credit card which suits you at the most.
9. Can I get a credit card without a job?
Answer: Yes, it is possible if good amount of money coming into your bank account every month or if you have fixed deposits that you can apply for a secured credit card against FDs.
We hope that you find this article useful. Please share your thoughts in comment section.
RK Dhiman, CA, M.COM (K.U.K.)
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