Details To Know Before Using Your Credit Card.
A credit card is a thin rectangular piece of plastic or metal issued by a bank or financial services company, that allows cardholders to borrow funds with which to pay for goods and services with merchants that accept cards for payment. Credit cards impose the condition that cardholders pay back the borrowed money, plus any applicable interest, as well as any additional agreed-upon charges, either in full by the billing date or over time.
According to data provided by the Reserve Bank of India, as of December 2020, there are 60.4 million credit cardholders in the country. The credit card debt in the same month was ₹63.84 lakh - arrived at by assessing the value of transactions at ATMs and point of sales (POS). The total number of credit card transactions in December 2020 alone equalled 174.7 million.
Credit Card Rating:
Your credit score depends on the regularity of your financial activity and how promptly you pay off your bills. Timely repayment of credit card debt will help build up your credit score that would augment the chances of getting loans approved. You miss a repayment cycle, and the result is debt piling up on your card. This gets recorded in your credit file, thus, impacting your credit score in the negative. They are credit rating companies that provide credit scores to your paying cycle.
Higher interest rates:
Many credit card companies offer bonuses for signing up for credit cards. The customers avail bonus points on having spent a certain amount within a certain period. These bonus points can provide discounts on other purchases. Cashback offers during seasonal bonanza sales also help you avail of discounts on paying with credit cards; sometimes you may even get a small amount of money back on paying with credit cards. Credit card companies make it seem attractive to use credit card to spend. But it’s equally important to remember that the money should be repaid else it will invite interest charges as high as 10% every day.
Discount and Cashback:
Nothing comes for free, so hold your credit card before falling into the traps of discount and cashbacks. To avail discounts, you must earn bonus points that are not possible without spending on a sizeable point. This means that the whole idea is to make you spend using your credit cards. This is because merchants accepting payments via credit cards must pay a percentage of the transaction amount to credit card companies. The cashback that you get is simply a part of the merchant fees that the credit card company shares with you. Besides, there is a yearly limit on cashback rewards beyond which you cannot exceed.
Credit cards can be used to pay bills in any currency. Though banks or credit card companies may charge currency conversion fees, you may use your card to shop at overseas online stores or pay during an international trip. Some credit card companies also wave off fees on international purchases as a reward for increased use. However, beware of rampant credit card use as it may cause you to miss a payment or carry forward a balance debt that will have to be repaid with fees and interest charges. In some cases, the charges can be high; combine that with Goods and Services Tax (GST), and you end up paying a hefty amount as a foreign currency mark-up fee.
Never use your credit card to withdraw cash through credit card. This is because of the high cash advance fees that could either be fixed or levied as a percentage of the amount withdrawn. The credit limits on different cards vary, thus, determining the cash withdrawal limit. In most cases, banks and credit card companies allow their customers to withdraw up to 40 per cent of the card limit. However, interest charges ranging between three and five per cent accrue immediately after cash withdrawals using credit cards. This means that a withdrawal of ₹10,000 can incur an interest penalty in the range of ₹300-500.
Not many credit cardholders are aware of the charges applicable on all credit card payments and settlements. If you are someone who makes informed decisions on income and expenses, unplanned spending using credit cards may not be the right choice.