Financial emergencies can hit at any time in life, no matter how financially stable you are or
not. Whether it is a medical emergency, or a sudden expensive necessity, anything can come up and we have to be prepared at all times. Sometimes when we aren’t prepared for such
unexpected hits and don’t have the lump sum money in handy, we have no other option other than taking a loan depending on how urgently we need it.
One of the most popular ways of having access to cash advances is through credit cards.
Many people think of it as using it to buy “cash” rather than goods or services.
Over the years, credit cards have changed the way people transact. From fulfilling the smallest needs like shopping to huge bank loans being approved within a short amount of time, credit cards have come a long way in being man and a woman’s best friend when it comes to the world of money.
While it is commonly believed that getting a credit card hurts your financial health, if you use
it the right way, it can help you enhance your financial health.
For those of you whoare new to the plastic card world, a credit card is a thin rectangular piece of plastic or metal issued by a bank that allows cardholders to borrow money for a short amount of time.
Many people mistake it for free money and later go into grave debt – but don’t be mistaken. Credit cards impose the condition that cardholders pay back the money borrowed, plus any applicable interest, either in full or overtime before the billing cycle.
In simple terms, Credit cards are payment cards that allow you to make purchases on credit that are convenient, secure and accepted almost everywhere.
In this article, we’ll explore the basics of what is a credit card, benefits of using one, the types of cards available, and how you can get your own.
What is a Credit Card?
A credit card is a payment card issued by a financial institution that allows you to borrow money to pay for goods and services. You can use your credit card to make purchases or withdraw cash from ATMs, and the amount you spend or withdraw is added to your card’s balance. You are then responsible for paying back the amount you’ve borrowed, plus any applicable interest, fees, and other charges.
Credit cards offer convenience, security, and the ability to earn rewards. With a credit card, you don’t have to carry around cash or worry about the security of your bank account. Credit cards typically have fraud protection, so if your card is lost or stolen, you are not liable for any fraudulent purchases. Additionally, you can often earn rewards such as cash back, air miles, or points that you can redeem for discounts or free items.
Credit cards are also a great tool for building credit. When you use your card responsibly and make on-time payments, your credit score will increase. This makes it easier to get approved for other forms of credit, such as a loan or mortgage.
A credit card provider may also offer cardholders a separate line of credit (LOC) in addition to their standard credit line. This enables cardholders to take out cash advances, which can be accessed through ATMs, bank tellers, or credit card convenience checks. However, these cash advances usually have less favorable terms, such as higher interest rates and no grace period, compared to transactions that use the main credit line. Issuers usually set credit limit based on a person’s credit score. Credit cards are still one of the most commonly used payment methods for consumer goods and services.
Credit Card Benefits
Credit cards offer many benefits that make them a great way to make purchases and save money. Here are some of the benefits of using a credit card:
- Convenience: Worrying about how much cash you have in hand can be a big problem sometimes. Carrying a credit card makes it easier to cash unexpected bill payment. Credit cards offer convenience in several ways:
- They are easy to use: Credit cards are easy to use and accepted at a wide range of merchants, making it simple to make purchases without having to carry cash.
- Enable online shopping: Credit cards can be used for online shopping, providing a convenient and secure way to make purchases from the comfort of one’s own home.
- Make mobile payments: Many credit cards offer mobile payment options, allowing cardholders to use their smartphones to make purchases and track their spending.
- Act as emergency funds: Credit cards provide cardholders with access to emergency funds through cash advances or credit card convenience checks.
- Record keeping: You can easily keep a track of all your credit card transaction, making it easy for cardholders to track their spending and manage their finances.
- Rewards: When you use a credit card, you can earn various reward points and cashback for purchases made using your credit card. Credit cards can offer several benefits for rewards:
- Earn rewards: Many credit cards offer a rewards programs, such as cash back, credit card points, or miles, which can be earned on purchases made with your card.
- Offer multiple reward options: Credit cards often offer several reward options, allowing cardholders to choose the reward program that works best for them and their spending habits.
- Offer bonus rewards: Some credit cards offer bonus reward points for reaching certain spending thresholds or for using the card to make specific types of purchases, such as dining or travel.
- Ability to redeem rewards: Accumulated reward points can be redeemed for a variety of options, including cash back, merchandise, travel, and more, providing cardholders with a flexible and valuable way to use their reward points.
- Building Credit: If you use your credit card responsibly, it can help build credit in the following ways:Help credit utilization: Using a credit card and paying bills on time shows responsible credit use, which can positively impact a person’s credit score.
- Create a credit history: Having a credit card and using it regularly helps establish a credit history, which is a critical factor in determining a person’s credit score.
- Report to credit bureaus: A Credit card issuer regularly reports cardholder activity to credit bureaus, which can help build and maintain a positive credit history.
- Improve credit mix: Having a mix of different types of credit, such as a mortgage, car loan, and credit card, can also positively impact a person’s credit score.
- Flexibility: Owning a credit cards offers flexibility in several ways:
- Offer multiple payment options: Credit cards provide the option to pay in full, make a minimum payment, or pay a specific amount each month. This allows cardholders to choose a payment method that works best for their financial situation.
- Provide flexible due dates: Many credit card issuers offer the option to choose a due date that works best for the cardholder, allowing for greater flexibility in managing monthly payments.
- Allow cash advances: Credit cards allow cardholders to access cash through ATMs, bank tellers, or credit card convenience checks, providing a flexible source of emergency funds.
- Provide credit limit: Credit card issuers often offer a credit limit that provides cardholders with a flexible source of funds, allowing them to make purchases without having to carry large amounts of cash. Make sure to set your credit card limit and spend only what you earn.
Disadvantages of Owning a Credit Card
While Credit cards have become an increasingly popular and have numerous benefits in recent years, with millions of people using them on a regular basis, credit cards also have a number of disadvantages that should be considered before making the decision to use one. Here are some of the key disadvantages of using a credit card, and provide insights into how these can be managed.
- High Interest Rates: One of the biggest disadvantages of using a credit card is the high interest rate that are often associated with them. These rates can be much higher than those of other forms of credit, and can make it difficult for cardholders to pay off their balances in a timely manner. Furthermore, if a cardholder is unable to make payments on time, interest charges can quickly add up, making it even more difficult to get out of debt.
- Fees: In addition to the high interest rate, credit cards also often come with a number of fees, such as annual fees, balance transfer fees, cash advance fees, and late payment fees. These fees can quickly add up, and can be a significant financial burden for cardholders who are not careful.
- Temptation to Spend: One of the biggest disadvantages of credit cards is the temptation they provide to spend more money than one can afford. With credit cards, it is easy to make purchases that one may not have been able to make with cash, and this can lead to overspending and debt. Additionally, credit cards can make it easy to impulse buy, which can be a dangerous habit that can lead to financial problems.
- Debt Accumulation: Credit cards can also lead to debt accumulation, which can be a significant problem for cardholders. With credit cards, it is easy to make purchases without having to worry about the funds available in one’s bank account, which can lead to overspending and debt. Furthermore, the high interest rate and fees can make it difficult to pay off this debt, leading to a cycle of debt that can be difficult to break.
- Security Concerns: Credit cards are also subject to security concerns, such as fraud and identity theft. Cardholders may also be at risk of having their credit card information stolen if they make purchases online or use their card at an ATM. In some cases, this can result in unauthorized charges and the need to dispute the charges with the credit card issuer.
- Lack of Rewards for Cash Payments: While many credit cards offer rewards for making purchases with the card, they do not offer rewards for making payments in cash. For those who prefer to use cash, this can be a significant disadvantage. Additionally, rewards programs can also be complex and difficult to understand, making it difficult for cardholders to maximize the benefits they receive.
- Limited Credit Availability: Credit card companies often set credit card limit based on a person’s credit score and financial situation. For those with poor credit scores, this can mean having a limited credit limit, making it difficult to make larger purchases or to access emergency funds when needed.
In conclusion, credit cards have several disadvantages, including high interest rates, fees, temptation to spend, debt accumulation, security concerns, lack of rewards for cash payments, and limited credit availability. While credit cards can be a convenient form of payment, it is important to consider these disadvantages carefully before deciding to use one. Additionally, it is important to use credit cards responsibly, and to pay off balances in full each month and regularly monitor your credit card transactions.
Types of Credit Cards
There are several types of credit cards available for customers to choose from in India. Here are some of the most popular types of credit cards in India:
- Rewards Credit Cards: These cards are designed for individuals who want to earn rewards points on their purchases. Cardholders can earn points on a variety of purchases, including groceries, dining, entertainment, and more. These points can then be redeemed for cash back, gift cards, or merchandise.
- Cashback Credit Cards: Similar to rewards credit cards, cashback credit cards offer cardholders cash back on their purchases. Cashback can be earned on a variety of purchases, including groceries, dining, entertainment, and more.
- Travel Credit Cards: These cards are designed for individuals who travel frequently. Cardholders can earn rewards points on their travel-related purchases, including airfare, airport lounge access, hotel stays, and car rentals. These points can then be redeemed for free travel or other travel-related benefits.
- Fuel Credit Cards: These cards are designed for individuals who frequently purchase fuel for their vehicles. Cardholders can earn rewards points on their fuel purchases, and these points can be redeemed for fuel discounts, cash back, or other benefits.
- Premium Credit Cards: Premium credit cards are designed for individuals who have a high income and good credit score. These cards offer a variety of premium benefits, including travel insurance, lounge access, concierge services, and more.
- Co-branded Credit Cards: Co-branded credit cards are issued in partnership with a specific brand or retailer. These cards offer cardholders rewards points or cash back on purchases made with that specific brand or retailer.
- Secured Credit Cards: Secured credit cards are designed for individuals with poor or limited credit. These cards require a security deposit, which is used as collateral for the credit card. Cardholders can use the card just like any other credit card, and the deposit will be returned when the card is closed or upgraded to an unsecured card.
- Lifetime free Credit Cards: Lifetime free credit cards are credit cards offered by banks in India that do not charge an annual fee for the life of the card. This means that you can use the card and enjoy its benefits without having to pay a yearly fee to keep the card active. Some banks may offer a limited-time promotion of a waived annual fee, but with a lifetime free credit card, the fee is waived permanently. However, it is important to note that while the annual fee may be waived, other fees such as late payment fees or over-the-limit fees may still apply. Additionally, some lifetime free credit cards may require a minimum spend or a certain number of transactions each year to maintain the waived annual fee. It is important to carefully read the terms and conditions of the card before applying.
These are some of the most popular types of credit cards available in India. When choosing a credit card, it is important to consider one’s spending habits, needs, and goals to find the best credit card for you.
Note: Most credit cards today provide contactless credit cards that allow for contactless payments at retail and physical stores.
Credit Card Eligibility and Requirements
Now that you know what is a credit card, types, benefits and disadvantages, in order to get one, you must first meet the eligibility and requirements set by the credit card issuer. To be eligible for a credit card in India, you typically need to meet the following criteria:
- Age: You must be at least 18 years old to apply for a credit card in India.
- Residency: You must be a resident of India and have a valid Indian address.
- Income: You must have a minimum income to be eligible for a credit card. The required income varies by card issuer and the type of card you are applying for.
- Employment: You must be employed or self-employed to apply for a credit card in India.
- Credit Score: You must have a good credit score to be eligible for a credit card. A good credit score is generally considered to be 700 or above.
- Financial History: You must have a good financial history, including a stable income and a history of on-time payments.
In addition to these eligibility criteria, you may need to provide the following documentation when applying for a credit card in India:
- Identity proof: You will need to provide a government-issued identity card, such as a PAN card, Aadhaar card, or passport.
- Address proof: You will need to provide a government-issued document that proves your current address, such as an Aadhaar card, passport, or utility bill.
- Income proof: You will need to provide proof of your income, such as your latest salary slip, IT returns, or bank statement.
- Employment proof: If you are employed, you will need to provide proof of employment, such as a letter from your employer. If you are self-employed, you may need to provide proof of your business, such as a certificate of incorporation.
These are the basic credit card eligibility criteria and requirements in India. However, specific requirements may vary by card issuer, so it is important to check with the card issuer for specific requirements before applying for a credit card.
How to Get a Credit Card
Getting a credit card is relatively easy, but there are a few steps you should take to make sure you get the best credit card for your needs. To get a credit card in India, you can follow these steps:
- Check eligibility: Most banks require a minimum income and a good credit score to get a credit card.
- Compare cards: Look for cards that offer the benefits you want such as rewards, cashback, discounts, etc.
- Apply online: Visit the website of the bank you want to apply with and fill out the online application form.
- Provide documents: Submit the required documents such as identity proof, address proof, income proof, and a recent passport size photo.
- Wait for approval: The bank will review your application and decide if you are eligible for a credit card.
- Activation: If approved, the bank will send your credit card along with a pin. Activate the card and start using it.
Note: It is advisable to compare different cards and read the terms and conditions before applying for a credit card.
Credit Card Payments, Fees and Purchases
While credit cards offer many benefits, it is important to understand the various fees and charges that come with using a credit card, as well as the best practices for using your card to make purchases.
Credit Card Payments
Once you’ve been approved for a credit card, you’ll need to make regular payments to keep your account in good standing. Here’s how to make credit card payments:
- Set Up Automatic Payments: Most credit card companies allow you to set up automatic payments so you don’t have to worry about manually making payments each month.
- Make Payments on Time: To avoid late fees and other penalties, make sure to make your payments on time.
- Pay More Than the Minimum: To avoid interest and minimize your debt, try to pay more than the minimum each month.
- Pay Your Balance in Full: If possible, try to pay off your balance in full each month. This will help you avoid interest and maximize your rewards.
Credit Card Fees
In addition to the interest you’ll pay if you don’t pay off your balance in full, there are other fees associated with credit cards. Here are some of the most common fees:
- Annual fee: Some credit cards come with an annual fee, which is a charge you pay each year for the privilege of having the card.
- Late payment fee: If you do not make the minimum payment by the due date, you may be charged a late payment fee.
- Over-the-limit fee: If you go over your credit limit, you may be charged an over-the-limit fee.
- Cash advance fee: If you use your credit card to withdraw cash from an ATM, you may be charged a cash advance fee.
- Balance transfer fee: If you transfer a balance from another credit card to your new card, you may be charged a balance transfer fee.
- It is important to carefully read the terms and conditions of your credit card and understand the fees associated with it before signing up.
Credit Card Purchases
When making a purchase with your credit card, there are a few best practices to follow:
- Use your card responsibly: Only use your credit card for purchases you can afford to pay off.
- Keep track of your purchases: Regularly check your credit card statement to ensure that all transactions are correct and to keep track of your spending.
- Monitor your credit score: Regularly check your credit score to ensure that your credit card use is not negatively affecting your credit score.
- Use rewards wisely: If your credit card offers rewards, use them wisely and only for purchases you would have made anyway.
Tips for Managing Your Credit Card
To make the most of your credit card, it’s important to manage it responsibly. Here are some tips for managing credit cards effectively in India:
- Make payments on time: Always pay your credit card bills on or before the billing cycle to avoid late payment fees and damage to your credit score.
- Stay within your credit limit: Keep your credit card usage under control by staying within your credit limit. High credit card usage can result in high interest charges and impact your credit score negatively.
- Avoid cash advances: Cash advances from credit cards usually have high interest rates and can be costly. Avoid using your credit card for cash advances if possible.
- Keep track of your spending: Keep track of your spending on your credit card to help you stay within your budget and avoid overspending.
- Shop around for the best card: Choose a credit card that suits your spending habits and financial situation. Compare different credit cards and their interest rates, rewards programs, and fees before applying.
- Use rewards wisely: If you have a credit card with a rewards program, use it wisely. Make sure you understand the terms and conditions of the program and how to earn and redeem rewards.
- Keep your card information safe: Always keep your credit card information safe and secure. Do not share your credit card details with anyone and use secure online payment methods when making online purchases.
- Monitor your credit report: Monitor your credit report regularly to ensure that all the information is accurate and up-to-date. Dispute any errors you find promptly.
- Lost or stolen card: If you have a lost or stolen card, make sure to call your credit card issuer or use your banking application to immediately report to loss of your credit card to your bank customer care to avoid theft and fraudulent transactions.
By following these tips, you can manage your credit card effectively and make the most of the benefits it offers while avoiding the pitfalls.
A credit card offers many benefits, such as convenience, security, and rewards. They can also help you build credit and provide flexible payment options. To get a credit card, you must meet the eligibility and requirements set by the credit card issuer. Once you’ve been approved, you can start making purchases and earning rewards. Just make sure to use your credit card responsibly, stay within your credit limit and manage it carefully to avoid debt and financial problems.
As you can see, a credit card can be a great way to make purchases and earn rewards. With a little bit of effort and planning, you can make the most of your credit card and enjoy all the benefits it has to offer.