A Lot of people miscomprehend the usage of credit card thinking that it only augments their expenditure & nothing else, however they are not aware of the proper usage of the card. A Credit Card is plastic money which is used as a way of payment, facilitating you to purchase products/services on credit. It eases your life & your shopping experience is made simpler as you are not required to carry cash at all the places; just swipe your credit card & you are given a free credit period of 50-55 days by the bank. A lot of people think that the credit period starts from the date of purchase which is not correct; you should note that the credit period is calculated from the date of billing and not from the date of purchase. Get more information on credit card pin, credit card eligibility and Rejected reasons for credit card at Articles about Credit Card.
Benefits of Credit Card
1) Free Credit Period : Firstly the Credit Card offers you a free credit period (of 50-55 days) from the date of the billing cycle which helps you to purchase on credit without any hassle of carrying cash, thus making your shopping much easier.
2) Online Shopping : The Credit Card helps you to buy products/services online or over the phone thus helping you to purchase anywhere 24x7.
3) Advantage of various Branding offers : Most importantly credit cards offer various discounts & schemes which are associated with entertainment, travel, shopping etc. Issuing Credit Card Banks tie up with the reputed brands to sell products/services at attractive rates which you can buy through your credit cards. To check offers running on your credit card.
4) Borrowing cash through credit cards : You can also withdraw cash through ATMs at any time.
5) Credit Cards also offer reward points on purchases which you can accumulate and redeem later with cash backs & attractive gifts etc.
Compare credit cards
There is a plethora of credit card choices available in the market which would simply clutter the process of choosing your card, so before you opt for a card you must evaluate the card features on the basis of following points:
• Interest rate: The interest rate is levied by banks whenever you revolve your outstanding balance into your next billing cycle; it ranges from 2.79 - 3.9 per cent per month varying from bank to bank. Go with the bank which has the cheapest interest rate.
• Identify a card suiting your needs & where you spend the most : Search for a card which serves your needs & the areas of your expenditure should match the type of the card, e.g. if you are an overseas traveler you can look at a Global card which can be used for paying expenses in foreign currency and offering 24-hour travel bookings around the globe.
• Annual Fee, Joining Fee & other featues : You should review the features of the cards available; make sure that the card offers maximum features such as zero annual fees, zero joining fee 24-hour helpline & good reward points program.
•Grace Period/Interest free Period : It is that period offered by banks during which they don’t levy any charges, the period is between the statement date and the due date of payment. It is normally between 15 to 20 days and varies from bank to bank. You must look for a card which offers maximum grace period.
• Look out for various kinds of rewards & lucrative offers : There are various cards which have a reward structure offering rewards in the form of flier points while purchasing a specific good/services & these points can be redeemed for attractive gifts & cash back offers. Card companies offer certain credit cards which come with the high annual fee and offer luxurious services like hotel accommodations, concierge services for 24X7 travel bookings around the globe.
Balance Transfer in Credit Card - How does it help?
What is a Balance Transfer?
It is the process of transferring the existing outstanding balance or debt from one credit card to another credit card.
How does it benefit?
It benefits the card holders when there are high interest rates on their existing cards as against the other card on which the balance is transferred. This facility helps those who are not satisfied with the services by the existing card company like incorrect billing, non-receipt of the card bill etc. thus switching from one card to another offers the card holders with low interest charges or sometimes 0% charges & other services.
Balance Transfer interest rates
Most of the banks offer low interest rates or sometimes even zero interest on balance transfer on credit cards ; however you should note that these rates are applicable only for initial period (3-4 months), post that the bank will start charging you at the same rate what your preceding card company charged you.
Credit Limit
The balance transfer reduces the credit limit of the second card to the balance transferred amount. You must note that the transferred amount should not exceed 80 per cent of your credit limit.
How to use Credit Cards wisely?
The Credit Card should be managed cautiously & judiciously so that you can fully enjoy the free credit period of roughly 50-55 days without any worry.
Let’s understand your credit card by an example, for instance if Sunil makes a purchase worth Rs. 8,000 using the credit card in the month of January, but pays back only the minimum amount due (say 5%) of Rs. 400, then further he makes purchases in the month of February worth Rs. 7,000. At the time of payment of his credit card bill he would be paying the previous balance of Rs. 7600 & the new purchases of Rs. 7000 together get charged with the interest of 36% p.a. You should note that making a partial payment & forwarding the credit to the next billing cycle is called revolving credit & in this case Sunil is called a Revolver in the banking terminology.
To avoid such high interests on your purchases pay the entire outstanding payments before the due date. Moreover if you don’t pay the minimum balance (of Rs. 9500) you are slapped with another charge called the late payment fee of around 2% together with the interest.
To avoid such high interests on your purchases pay the entire outstanding payments before the due date. Moreover if you don’t pay the minimum balance (of Rs. 9500) you are slapped with another charge called the late payment fee of around 2% together with the interest.
Important pointers for Credit Card holders
- As soon as you get the credit card, you need to sign on the signature panel - Spend within your credit limit: You should not cross the limit of the credit allotted by the bank as they charge hefty fine from the card holders. - Always check sales vouchers/charge slips and the purchase amount when you sign them. - Change your PIN regularly & do not give out your card number or CVV number (three-digit number) to anyone on the phone, unless you are dealing with a reputable company. - When shopping online, submit credit card details only through secure websites. - Always keep a track of your billing cycle & pay bills on time to avoid interest charges & late fees. - Always scan your credit card statements for unauthorized transactions. If you've been defrauded, contact the issuing bank instantly. - Withdrawing cash from ATM through your credit card is really expensive as there is a fee of Rs 350, plus 3.5 percent interest per day. You must make sure that you withdraw the cash only in an emergency.
How does Credit Card work?
Before we discuss about the credit card process, let’s first look at the players involved in the credit card business:
Credit Card Holder : The person who is issued a credit card, who actually holds & uses it. He purchases various things through the card & pays the borrowed money later within a scheduled time to the bank or the company.
Merchant/Shop-keeper : The person who accepts the payments from the card holder through the swiping of the credit card in return of the transaction.
Card Issuing Bank : It is the bank which has actually issued the credit card to customers & offers credit to them on transactions made by the card holder. Acquiring Bank: All the transactions made using the credit card is done through the acquiring bank. The merchant pays a fee to the acquiring bank for the signing of machine & other services.
Credit Card Network : This is that network which helps facilitate the card transactions such as Visa or Master Card.
Credit Card Process
The process starts with the swiping of your card on the merchant’s card swiping machine which has been provided by the acquiring bank to him. As soon as the card is swiped; the transaction is checked & verified by the card issuing bank whether the credit card is eligible for the requested amount of credit. Once the card holder is verified for the credit, he signs the charge slip which is forwarded to the acquiring bank and closes the transactions with the merchant; further the acquiring bank settles the transactions with the issuing bank.
Banks earn in two ways, firstly by the fee paid by the merchants for enrolling the services (machine etc.). Secondly from the card holders who default by not paying the entire outstanding balance before the due date.
Credit Cards help in day-to-day transactions of goods & services offering a free credit period provided the card holder pays the outstanding balance within the grace period; otherwise the card holder has to pay interest charges & late fee if the payment is made after the due date.
In nutshell buying through credit cards really benefit till the time you pay your card bills on time, or else it will turn out be very expensive.
