What is Credit Card? Credit cards are small plastic cards that allow you to purchase goods and services on credit, the money for which you can return every month. In other words, credit cards give you an opportunity to borrow money, typically at the point of sale. You can choose to pay the full amount borrowed or a minimum fixed amount every month to the issuer. You are required to pay interest on the outstanding amount of your card. Credit cards are used for short-term financing and the issuer sets your credit card limit. How does it work? When you indicate to pay with a credit card at the point of sale, the merchant you’re dealing with submit a request to the bank or financial institution which will process the credit card payments on his behalf (acquirer) via a dial-up modem phone connection or a dedicated network connection. The acquirer then sends a request to the credit card issuer to authorize the transaction. The issuer authenticates your account and verifies whether you have sufficient credit to cover the purchase or not. If everything appears good, you are asked to sign the charge slip. The merchant then verifies your signature with the one at the back of the card. The charge slip is then forwarded to the bank, which in turn settles the transaction. The issuer or the credit card company subtracts its interchange fees (ranges from 1% – 3% of transaction amount), which are shared with the association/ card network (Visa/ MasterCard), and transfers the amount to the acquirer. The acquirer, after keeping its margin (generally referred to as discount rate), transfers the remaining amount to the merchant. Once a month, the issuer accumulates your credit card consumptions and sends you a bill. You are expected to pay the bill on a set due date. If the complete payment is made within that period, then no interest is charged by the issuer. However, by that due date, if you choose to pay some portion of the due amount, then a pre-defined interest is charged on all your previous dues as well as fresh purchases, till you do not repay the complete amount due on your card. Types There are many banks in India that provide different types of credit cards with different fees, interest rates and rewarding programs. You can choose any credit card among the following which best suits your requirements and provides maximum benefits:-

• Standard/Regular credit card:

Standard credit cards are easily available to salaried individuals with a good credit history having a work experience of around 4 to 5 years.These cards have a low membership fee and there is no interest charged for the initial 6 to 9 months, on balance transfers.

• Classic credit card:

Classic credit cards come with features like global acceptance, revolving credit, cash advance, interest-free credit period, rewards program, supplementary cards, insurance and a dedicated 24/7 customer care helpdesk for customers. Most classic credit cards do not carry annual fees or joining fees and are offered at low finance charges.

• Gold credit card:

Gold credit cards are suitable for higher income groups who also have higher credit rating.The common features of a gold credit card are:

1. High cash withdrawal limit.
2. High credit limit.
3. Add-on card facility for family members like spouse, parents or children.
4. Travel insurance.
5. Cashback offers and other rewards.

• Platinum/Titanium credit card:

Platinum or Titanium cards are similar to gold credit cards but they have few more additional benefits. The additional features may differ from bank to bank. Few common features are listed below:

1. Protection against credit card loss and theft, online fraud transactions and sickness and injury by an accident.
2. The annual, joining and renewal fee of Platinum cards are a little higher compared to other types of credit cards.
3. Other privileges may include- surcharge waivers, revolving credit, interest-free credit period, annual fee reversals, welcome gifts in the form of vouchers from top retail brands, add-on card facility, wellness and beauty offers, lifestyle and dining benefits, etc.

• Rewards credit card:

Reward cardholders can earn rewards points on all their retail, online, etc. transactions done through the card, also when they spend a certain amount in a specific period of time. Apart from this, they can earn reward points as welcome gift, birthday gift, renewal bonus, etc. These reward points can be redeemed for products/services mentioned in the rewards catalogue, which includes cashback offers, air miles, travel offers, etc.

• Cashback credit card:

Cashback credit cards offer cashback to customers on their transactions, which varies from 5% to up to 20% depending on the spend category. Cashback can be earned on bill payments, movie ticket bookings, retail purchases, dining bills, grocery purchases, etc. The key features available with every cashback card are fuel surcharge waivers, annual fee reversals, dining and shopping privileges global acceptance, rewards program, balance transfers, etc.

• Balance transfer credit card:

Banks offer balance transfer facility on most credit cards. This facility allows cardholders to transfer the outstanding balance from one card to another new credit card availed with another bank. Repayments using the new card can be done in particular tenures at low-interest rates. Banks do charge a nominal processing fee for balance transfers. Most balance transfer plans do not charge any interest for the first three months of repayment and after that they charge a reasonable interest on the outstanding balance.

• Travel credit card:

Travel credit cards offer unlimited travel benefits not only in India but abroad as well. Most banks have tied up with airline companies or travel companies to offer travel credit cards. When customers use this card to make travel transactions, they can earn reward points which can be converted into air miles which can then be used to book flight tickets and upgrade seats. Apart from this, some travel cards provide access to airport lounges to the customers. Travel cards also provide hotel and holiday offers, golf offers, dining offers, travel insurance, etc.

• Business/Corporate credit card:

Business or Corporate credit cards are offered to business establishments, corporates and other financial institutions where the employer can offer credit cards to their employees, but these cards cannot be used by the employees for personal transactions and are valid only during their employment period with the company. The privileges offered on corporate cards are hotel accommodation and travel deals, business savings plans, expense management, insurance, fuel surcharge waivers, airport lounge access, rewards programs, cash advance, add-on cards, bill payments and options to convert purchases into monthly installments. Companies also have the option of getting the name of the company embossed on these credit cards.

• Co-branded credit card:

Co-branded credit cards are offered by banks in association with a retail brand, travel aggregator or any other financial institution. Privileges from both the parties are integrated into a co-branded credit card, letting customers enjoy double benefits on a single card.Depending on the tie-up, co-branded credit cards can have benefits like rebates, discounts and offers from a retail partner brand, ticket booking privileges from airline and railway partners, holiday and hotel accommodation privileges from travel aggregators and premier hotel chains etc. However, there is no restriction on the usage of such cards.

• Premium/Signature credit card:

Signature credit cards offer exclusive privileges like flexible spending limits, premium airport lounge access, complimentary insurance, rewards program, global assistance services, chartered yacht and flight services, surcharge waivers, retail, travel and hotel accommodation vouchers etc. There are more options for redeeming rewards that are earned using these cards. Some of these cards offer annual fee waiver, provided the cardholders reach a certain spend amount as well.

• Prepaid credit card:

Prepaid credit cards allow cardholders to load a certain amount of money in it and use that money to make the purchases. Even though these cards do not offer a line of credit, customers can enjoy most of the privileges that are provided by the other types of credit cards. It can also be linked to savings account and its outstanding balance is the amount that is left in your bank account or in the amount left in the card after making a certain transaction.

• Secured credit card:

These are the cards that are issued against a fixed deposit. Generally, a limit of up to 80% of the deposit amount is extended on the card. These can be used like any other regular credit card. These are a good option for individuals with low or zero credit history.

• Credit card for women:

Credit card for women ensures maximum benefits to women.These cards mainly offer shopping rewards and cashback offers. Apart from this, cardholders can get bonus reward points, fuel surcharge waiver, insurance etc. They can also earn reward points when they make purchases using their credit cards.  Few credit cards for women offer travel benefits as well.

• Contactless credit card:

Contactless credit cards are equipped with a unique payment technology that allow cardholders to make payments by simply tapping their cards at POS terminals. These contactless transactions do not require the customers to enter any PIN number to make purchases and are extremely secure. These cards offer several benefits such as- discounts, cash rewards, entertainment benefits, reward points, welcome gift, lounge access, insurance policy etc. Eligibility Criteria The eligibility for credit card varies according to the lender and the purpose for which the card is availed. The basic clauses which are mandatory for availing regular credit card include-

• Applicant should be at least 18 years old.
• Applicant should be salaried or self-employed, with a regular source of income to pay back the credit card bills.
• He should have a savings account in his name.
• He should not have a bad credit history.

Advantages

• Credit Cards are very convenient as they can be used for all offline and online purchases throughout the world and at any given point of time.
• Credit card also serves as a better alternative to cash. It gives you the freedom to be cashless during travel, shopping etc. It also reduces the possible risk of money theft and gives you a complete peace of mind.
• Credit card also provides easy access to credit. It functions on a deferred payment basis, which means you can use your card now and pay for your purchases later.
• Credit cards also offer you the chance to build up a line of credit. This is very important as it allows banks to view an active credit history, based on your card repayments and card usage.
• Credit card also helps in making bulk purchases without having enough savings by giving you the option of paying in installments/EMIs.
• Credit card also offers interest-free repayment period ranging between 45-60 days, during this period your outstanding credit is not charged any interest. However, you need to repay the amount due within the aforesaid period.
• Credit card also comes with various incentives and rewards which include- cash back, reward point accumulation with every swipe, discounts on large purchases, flight tickets, holidays etc. which can later be redeemed as air miles or can be used towards paying your outstanding card dues.
• Credit Cards can be used in foreign countries without converting your money into foreign currency.Although it involves some cost.
• Credit card also records each purchase made through the card, a detailed list of which is sent with your monthly credit card statement. This can be used to determine and track your spending and purchases.Issuer also provides you instant alerts each time you swipe your card, detailing the amount of credit still available as well as the current outstanding on your card.
• Credit cards also offer additional protection in the form of insurance for card purchases that might be lost, damaged or stolen.

Disadvantages

• If you do not clear your dues by your billing due date, the amount is carried forward and interest is charged on it. This interest is accrued over a period of time on the amount due and purchases that are made after the interest-free period. Credit card interest rates are quite high, with the average rate being 3% per month, which would amount to 36% per annum.
• Unnecessary purchases or reckless use of credit cards may lead to overspending and owe more than you can pay back, beginning the cycle of debt and high-interest rates, damaging your financial future.
• Credit cards appear to be simple and straightforward but have a number of hidden charges in the form of taxes and fees such as- late payment fees, joining fees, renewal fees, processing fees etc. Missing a card payment could result in a penalty and repeated late payments could even result in the reduction of your credit limit, which would have a negative impact on your credit score and future credit prospects.
• Withdrawing cash from a credit card leads to accumulation of interest from the time of withdrawal, rate of interest will depend upon the amount withdrawn. You will have to pay interest even if a withdrawal is done in the morning and you do the repayment in the evening.
• Though not very common, there are chances you might be a victim of credit card fraud. With advances in technology, it is possible to clone a card and gain access to confidential information through which another individual or entity can make purchases on your card. Check your statements carefully for purchases that look suspicious and inform the bank immediately if you suspect card fraud.

  Note: The amount displayed on the top of the billing statement is the minimum amount that the company expects you to pay to continue receiving credit facilities, not the total amount due.