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The Beginners Guide to Credit Cards

IndianMoney.com Research Team | Posted On Friday, September 27,2019, 06:15 PM

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The Beginners Guide to Credit Cards

 

 

The Beginners Guide to Credit Cards

What are Credit Cards?

Credit Cards is also known as plastic money, it is one of the most convenient ways of making payments while shopping and helps in maintaining records of all purchases made by us. The major advantage of plastic money/credit card is that you don’t have to carry cash and you can get rewards points on each purchase made. Only banks are permitted to issue credit cards. Carrying cash can be a little dangerous at times. Credit cards can be swiped at almost any establishment all over the globe. You can also withdraw cash on your credit card.

A Credit card today provides you with not only shopping convenience and safety, but also offers you privileges like discount coupons, invitations to events, bonus points, cash-back and a free insurance. But how do you select the right credit card with so many variants available and various offers and promotions, choosing a card can be very difficult. But mostly, it depends on how you plan to use your Credit card.

Credit cards are similar to charge cards; at the end of a month particulars of all amounts purchased are sent to the card- holder who is required to pay a minimum amount (if he does not wish to pay the entire amount). He will be then given credit for the balance not paid and charged interest on the balance (it varies between 2 – 3% per month).

Tips for credit card application

When you are filling out a credit card application form, there are some tips you should know that may help you get accepted.

  • If you have a bad credit history, then it is unlikely that you can turn to your local bank and ask for a credit card.
  • The Internet is the best place to begin if you are looking for a credit card. There are millions of ways to collect information and to see what credit card will suit you best.
  • There are companies that claim that they will give you a credit card without looking at your credit history. But be warned that having a credit card can force you into debt. You should be careful when choosing a credit card; always check the fine print. And if you find something that doesn’t look right, then you can refuse to sign the form; or even better - bring your lawyer to look at it and he will give you all the advice that you need.
  • Before applying for a credit card, you must check your own finances and see whether you can handle a credit card. Most people are prone to go on a small shopping trip every now and then; and when the bill comes through, we panic and it can end up in a downward spiral if we are not careful.
  • Credit cards are items that should be handled with care; if you think that you can't handle a credit card, then DON’T apply. You need to be completely sure that you can handle the bill every time it arrives in your mailbox. If you are not ready for this responsibility, then refuse credit card offers.

There are a number of cards issued to customers to facilitate banking activities. These cards are in plastic and usually about 8.5 cm by 5.5 cm in size. The name of the holder and the number of the card will be embossed on it. It also has an expiry date.

Types of Cards Transactions

These types of card transactions are accumulated over a period of time (generally a month) and then the total will be debited to the account. The card- holder will be given 25 to 50 days to pay. These are called charge cards as the transactions are accumulated and not debited to the account immediately. The amount on a charge card is payable in full and no credit is given to the customer. These cards are also called T & E cards.

E.g.: American Express and Diners Cards

MasterCard and Visa is the major credit card and most banks offer either MasterCard or Visa coupled cards. This is for acceptability at vendor establishments.

What is Debit Card?

Debit cards are dissimilar to charge and credit cards because the holder receives no credit. As soon as a transaction is undertaken, the customer’s account will be debited with the amount of the purchase. If the customer does not have sufficient balance the transaction will be rejected. These are issued by banks and are coupled to the account of the holder. The important features of Debit Cards are that individuals cannot buy more than they have funds for. Debit cards are like to ATM cards and have a unique number. Bank customers can use this to withdraw money from ATMs by punching in their personal identification number or they may pay for goods and services. When paying for goods/ services the vendor swipes the card through a point of sale terminal. The customer’s account will be checked and if there is adequate balance, the account will be debited and the vendors account will be credited. The great benefit is that the customer will not create huge outstanding by using these.

What is Smart Card?

A smart card is similar to any other credit card. It however has an integrated circuit (IC) chip installed in it. The chip encloses memory, may contain a processor and communicates through contacts on the surface of the card. As these are difficult to copy there is a move to change credit cards and other cards into smart cards.

Electronic Purse

An electronic purse is a kind of smart card that has transferred into it an amount of money. Every time a transaction is entered into, the purse is depleted by the money taken out. Once empty it can be electronically replenished.

Tips for Selecting the right Credit Card

Decided to go in for a credit card? But do not know how to select? The explosion of cards in the market would simply confusion in the procedure of choosing. You can, of course, choose to move with whatever comes your way, or whatever your friend recommends, but if you at least want a sense of some of the tips and tricks that you could check to get a better card. Go Ahead

a) Go through the joining fee and annual fee

Normally, a card with a higher annual fee enjoys more benefits like higher credit limit, higher accident insurance cover, accessibility to airport lounges, travel discounts etc. Or at least this used to be the case. With cut-throat competition between the card issuing banks, players are ready to waive joining fees and also one-year membership fees for anyone. Grab these offers, or negotiate this for yourself.

b) Move on the Add-on card fee:

If you are interested in buying add-on cards for your children, spouse or friend, ask for the add-on card fee. Remember that you will be settling the bills on the add-on card that you so movingly gift to someone dear to you - the statement will come to you, and the responsibility for payment is yours (as far as the credit card company is concerned.

c) Interest rate:

Remember, while the upfront one off fees are bread and butter for the credit card company, this is the jam! If you're the kind who forgets to pay on time, or likes to live it up and live off credit, the interest rate would be of supreme importance. Most credit card companies charge anywhere between 2% to 3 % per month.

It is always worthwhile to pay off the entire amount on outstanding date, or, if you have a large bank balance, look for card companies that provide the transfer balance facility. The balance transfer rate is lower for a certain period and then the normal rates apply.

d) Is it a Global card or what?

Nowadays this could be useful to you if you are an overseas traveler. A Global card can be used for paying expenses in foreign currency as you use a credit card to pay in rupees. Nowadays, a Global card is being issued at the same cost as for a like domestic one. It is better to have a global card, especially if there is no premium attached.

e) Lost card liability:

More Card issuers mention in the brochures that lost card liability is Rs 1000.you should careful in this, that is actually AFTER it is report to the Bank. The liability is in reality is unlimited before reporting (in cases like this, you would actually thank the credit limit because though the liability is unlimited - the ceiling should logically be your credit limit, and the outlets accepting your stolen card should actually check that you (or the person who stole your card) haven’t exceeded your credit limit).Avoid banks that makes you liable for card misuse for a single minute after reporting it.

f) Is immediate cash withdrawal possible:

Check out if the Bank has any ATMs near your house or workplace? This surely helps in times of emergency.

g) We can be in the free credit period:

The days of credit one gets depends on the statement date and the date of transaction. On an usual, you could assume you'd get around 20 days of free credit. though, if you buy just after the statement date, you could end up getting up to 50 days of credit. Look for cards which you are using which give you the highest free credit period.

h) You have a Helpline:

A 24-hour Helpline service from the Card Company helps the cardholders throughout the non-banking hours. Reporting of theft, checking of available credit limit and some other enquiries can be made by the cardholder. In the end, like everything else in life, the card you want is really matters to you - what matters the most to you - credit, reach, the freebees, international reach or a combination of parameters. Use our card category on the left bar to simply list out the names of the cards, or choose by bank name and see the cards they offer.

How to use Credit Cards in ATMs?

Numerous credit cards can also be used in an ATM to take out money against the credit limit extended to the card, but many card issuers charge interest on cash advance before they do so on purchases. The interest on cash advances is usually charged from the date the withdrawal is made, rather than the monthly billing date. Many card issuers levy a commission for cash withdrawals, even if the ATM belongs to the same bank as the card issuer. Merchants do not offer cash back on credit card transactions since they would pay a percentage commission of the additional cash amount to their bank or merchant services provider.

Many credit card companies will also, when applying payments to a card, do so at the end of a billing cycle, and apply those payments to everything before cash advances. For this reason, many consumers have large cash balances, which have no grace period and acquire interest at a rate that is higher than the purchase rate, and will carry those balance for years, even if they pay off their statement balance each month.

How to Handle Credit Card?

A credit card is a card entitling its holder to buy goods and services based on the holder's promise to pay for these goods and services. The issuer of the card grants a line of credit to the consumer from which the user can borrow money for payment to a merchant or as a cash advance the user. Most credit cards are issued by local banks or credit unions and are the shape and size specified by the standard. Credit cards are issued after an account has been approved by the credit provider, after which cardholders can use it to make purchases at merchants accepting that card.

When a purchase is made, the credit card user agrees to pay the card issuer. The cardholder indicates consent to pay by signing a receipt with a record of the card details and indicating the amount to be paid or by entering a (PIN). Also, many merchants now accept verbal authorizations via telephone and electronic authorization using the Internet, known as a Cardholder Not Present (CNP) transaction.

How credit cards work?

Credit cards permit you to buy goods now and pay later called buying on credit. They aren't connected to your bank account. Like debit cards they can be used to buy goods in shops over the telephone and internet, with the same particulars being required. You can also get a cash advance by drawing money at bank cash machines. Your bank may offer you a credit card or you can apply for one to any institution offering one. The credit card provider will usually run checks to see if you've had problems repaying debts before offering you one called a credit check.

Each month, the credit card user is sent a statement indicating the purchases undertake with the card, any exceptional fees, and the total amount to be paid. After receiving the statement, the cardholder may dispute any charges that he or she thinks are incorrect.

Otherwise, the cardholder must pay a distinct minimum proportion of the bill by a due date, or may choose to pay a higher amount up to the entire amount allocated. The credit provider charges interest on the amount billed if the balance is not paid in full. Some financial institutions can arrange for automatic payments to be deducted from the user's bank accounts, as a result avoiding late payment in total as long as the cardholder has sufficient funds.

Major Types of Credit Card

In Indian credit card market there are a number of credit cards being provided by banks and financial institutions. These cards give a wide selection of financial profit to holders.Following are a variety of credit cards available in India :

  • Co-branded credit card
  • Cash Back Credit Cards
  • Business Credit Cards
  • Student Credit Cards
  • Balance transfer credit card
  • Airline credit card
  • Silver credit card
  • Gold credit card
  • Platinum Credit Card

1. Co-branded credit card

Visa or MasterCard credit card together sponsored by a bank and retail merchant such as a department store. Co-branded cards can be issued at less cost than conventional retail private label cards and give issuing banks admission to new customers. Cardholders may be given incentives such as discounts on merchandise, rebates or discounts off purchases. A co-branded card has a tie-in with a specific merchant rather than an association or professional group.

2. Cash Back Credit Cards

Several credit cards will now offer you cash back incentives for using their credit cards. Depending on how much your balance is and how often you use the credit card, you can earn cash back for your purchase.

3. Business Credit Cards

A business credit card offers the business owner the opportunity to keep business and individual expenses separate. The credit card may suggest special business rewards and saving opportunity that go above and away from what the individual credit card owner may have. Since money management is necessary in effectively running a business, the card may offer an expense management service that will allow you to keep path of the outgoing money. You can attain additional credit cards for employees who may need them for travel expenses and such as well as have a higher credit border than you normally would on an individual credit card.

4. Student Credit Cards

Numerous credit card companies will issue student credit cards that have lower credit limits and fewer incentives to help remain their spending in check. Still, take note. Many college students graduate with a credit balance that averages between 3,000 and 7,000 and with interest rates; this can be a real problem when trying to pay them off.

5. Balance transfer credit card

A balance transfer credit card is one in which you can transfer some of your debts and pay the sum off at a 0% interest rate for a set period of usually between six and 14 months.

6. Airline credit card

Airline credit cards that earn reward miles for discounted or free flights are a must have if you are a frequent flyer. Earning these valuable benefits can save a small fortune or free upgrades for your travel needs.

7. Silver credit card

Silver credit cards have been around since the beginning of credit cards in the mid-1950s. Today silver cards have been surpassed in prestige by gold credit cards and platinum credit cards and so have more normally come to be known as standard or basic credit cards.

8. Gold credit card

A gold-colored credit card, generally issued to customers with above average incomes, that may include additional benefits, for example, an overdraft at an advantageous interest rate, and may have an annual fee.

9. Platinum Credit Card

Platinum credit cards are generally offered to those individuals with good credit ratings and very high income. Platinum credit cards have many benefits and features compared to a silver or gold credit card. Conventional school of thought would find platinum credit cards to be a status symbol. However, relaxed rules and upper limits have brought them within reach of the average person too.

Advantages of Credit Card

Following are the advantages of credit cards

  • They allow you to make purchases on credit without carrying around a lot of cash.
  • They allow accurate record-keeping by consolidating purchases into a single statement.
  • They allow convenient remote purchasing - ordering/shopping online or by phone. They allow you to pay for large purchases in small, monthly installments.
  • Under certain circumstances, they allow you to withhold payment for merchandise which proves defective.
  • They are cheaper for short-term borrowing - interest is only paid on the remaining debt, not the full loan amount.
  • Many cards offer additional benefits such as additional insurance cover on purchases, cash back, air miles and discounts on holidays.

Disadvantages of Credit Card

Following are the disadvantages of credit cards

  • You may become an impulsive buyer and tend to overspend because of the ease of using credit cards. Cards can persuade the purchasing of goods and services you cannot really afford.
  • Credit cards are a relatively expensive way of obtaining credit if you don't use them carefully, especially because of the high interest rates and other costs.
  • Lost or stolen cards may result in some unwanted expense and inconvenience.
  • The use of a large number of credit cards can get you even further into debt.
  • Using a credit card, especially remotely, introduces an element of risk as the card details may fall into the wrong hands resulting in fraudulent purchases on the card. Fraudulent or unauthorized charges may take months to dispute, investigate, and resolve.

Tips for selecting the right Credit Card

Decided to go in for a credit card? But do not know how to select? The explosion of cards in the market would simply confuse you while choosing a card. You can, of course, choose to move with whatever comes your way, or whatever your friend recommends, but you at least need some tips and tricks that could help you to get a better card. Following are the things to be considered while choosing a credit card.

  • Go through the joining fee and annual fee
  • Move on the Add-on card fee
  • Interest rate
  • Is it a Global card or what?
  • Lost card liability
  • Is immediate cash withdrawal possible
  • We can be in the free credit period
  • Do you have a Helpline

1. Go through the joining fee and annual fee

Normally, a card with a higher annual fee enjoys more benefits like higher credit limit, higher accident insurance cover, accessibility to airport lounges, travel discounts etc. Or at least this used to be the case. With cut-throat competition between the card issuing banks, players are ready to waive joining fees and also one-year membership fees for anyone. Grab these offers, or negotiate this for yourself.

2. Move on the Add-on card fee

If you are interested in buying add-on cards for your children, spouse or friend, ask for the add-on card fee. Remember that you will be settling the bills on the add-on card that you so movingly gift to someone dear to you - the statement will come to you, and the responsibility for payment is yours (as far as the credit card company is concerned)

3. Interest rate

Remember, while the upfront one off fees are bread and butter for the credit card company, this is the jam! If you're the kind who forgets to pay on time, or likes to live it up and live off credit, the interest rate would be of supreme importance. Most credit card companies will charge somewhere between 2% to 3 % per month. It is always worthwhile to pay off the entire amount on outstanding date, or, if you have a large bank balance, look for card companies that provide the transfer balance facility. The balance transfer rate is lower for a certain period and then the normal rates apply.

4. Whether is it a Global card or what?

Nowadays this could be useful to you if you are an overseas traveler. A Global card can be used for paying expenses in foreign currency as you use a credit card to pay in rupees. Nowadays, a Global card is being issued at the same cost as for a like domestic one. It is better to have a global card, especially if there is no premium attached.

5. Lost card liability

More Card issuers mention in the brochures that lost card liability is Rs 1000.you should careful in this that is actually after it is report to the Bank. The liability is in reality is unlimited before reporting (in cases like this, you would actually thank the credit limit because though the liability is unlimited - the ceiling should logically be your credit limit, and the outlets accepting your stolen card should actually check that you (or the person who stole your card) haven’t exceeded your credit limit). Avoid banks that make you liable for card misuse for a single minute after reporting it.

6. Is immediate cash withdrawal possible?

Check out if the Bank has any ATMs near your house or workplace? This surely helps in times of emergency.

7. Can you be in the free credit period

The days of credit one gets depends on the statement date and the date of transaction. On a usual, you could assume you would get around 20 days of free credit. Though, if you buy just after the statement date, you could end up getting up to 50 days of credit. Look for cards which you are using which give you the highest free credit period.

8. Do you have a Helpline

A 24-hour Helpline service from the Card Company helps the cardholders throughout the non-banking hours. Reporting of theft, checking of available credit limit and some other enquiries can be made by the cardholder. In the end, like everything else in life, the card you want is really matters to you - what matters the most to you - credit, reach, the freebees, international reach or a combination of parameters. Use our card category on the left bar to simply list out the names of the cards, or choose by bank name and see the cards they offer.

A comparison of Debit cards and Credit cards

Credit Card

Every time you use a credit card you are really borrowing money that is made available to you by a bank. The institution pays the debt to the vendor and in turn, you pay the money back to the bank. By signing up for a credit card you agree to pay back the money that you borrowed, in addition to any interest drawn on the amount you borrowed.

Debit Card

Debit cards take funds directly from the money that you have in your bank account. With a debit card you don't have to carry cash or checks and it is very suitable to shop at a variety of places including gas stations, grocery stores, restaurants and retail stores. They give instant admission to your money and are accepted worldwide. Debit cards are used much like credit cards.

How Interest is charged on Credit Cards?

Credit card issuers regularly surrender interest charges if the balance is paid in full each month, but naturally will charge full interest on the entire outstanding balance from the date of each purchase if the total balance is outstanding.

For example; if a user had a 10,000 operation and repaid it in full within this grace period, there is no interest charged. If however even 1000 of the total amount remains due, interest would be charged on the 1,000 from the date of purchase until the payment is received. The exact manner in which interest is charged is usually detailed in a cardholder agreement which may be summarized on the back of the monthly statement.

What is Grace period?

A credit card's grace period is the time the customer has to pay the balance before interest is charged to the balance. Grace periods vary, but usually range from 20 to 40 days depending on the type of card issued by the bank. Generally, if a customer is late paying the balance, finance charges will be calculated and the grace period does not apply. With the majority credit cards there is no grace period if there is any outstanding balance from the previous billing cycle or statement (interest is applied on both the previous balance and new transactions). However, there are some credit cards that will only apply finance charge on the previous or old balance, excluding new transactions.

Benefits to customers

Since of strong competition in the credit card industry, credit card providers often offer incentives such as frequent flyer points, gift certificates, or cash back (normally up to 1 percent based on total purchases) to try to attract customers to their programs. However it should be noted that the incentive is insignificant to the interest charged for carrying a balance. Low interest credit cards or even 0% interest credit cards are available. However, services are available which alert credit card holders when their low interest period is due to expire. Most such services charge a monthly or annual fee.

Credit Card Safety Tips and Features

Credit Card Privacy

Have you ever wondered how companies, organizations, or even retailers have obtained your personal contact information or even asked yourself where all those endless mailers on promotions, events or subscription offers have come from? Now, ask yourself, do you want it to stop?

Although it may be helpful for consumers to be well informed of promotions or happenings, it also raises the question of privacy and control of using consumer’s personal information. To help you take that step ahead and sit in the driver’s seat, here are some ways to assist you.

See Also: Understand Credit Score

Credit Card Safety Tips

As a consumer, you can first start asserting your rights, by :

  • Spending some time to think about offers you have received over the past year.
  • Then see if you can identify the sources, whether offline or online, which have been linked to your name.
  • Identify which offers you would like to no longer receive further information from.
  • Thereafter contact these organizations you joined, magazines you subscribed to, charities you have supported, and your credit card issuer to ask them to delete your name from lists they rent to other organizations and merchants.
  • On the other hand, you should also follow through with your credit report, which is a good source of financial information. A credit bureau can examine the status of your credit report:
  • Call the credit bureau once a year for a copy of your credit report.
  • Check your report before applying for a job that requires a security clearance or background check.
  • If there is something wrong with the report, inform the credit bureau immediately. Correcting errors quickly will help prevent inaccurate information from being circulated.

Privacy Protection

Here are ways to safeguard your information from fraudulent use.

Credit Card Safety Online

  • Do not give your credit card or bank account number to any unsolicited caller who is unknown to you and seeks to sell you something or offers you a prize.
  • Be cautious about doing business on the spot with someone who calls you without a reference.
  • Check out unfamiliar companies by calling your local consumer protection office.
  • Memorize your personal identification number (PIN) for ATM transactions. Keep it in a separate place from your card, and never use your identity card number or PIN number as a password.
  • Keep your credit card account numbers in a confidential place. Sign new cards as soon as you receive them.
  • Destroy and discard carbon copies of receipts, copies of airline tickets, or anything else that displays your card number.
  • Do not allow a merchant to record your credit card number on a cheque, receipt, or other document.
  • Do not put your address, telephone number, or other personal information that does not appear on the front of your credit card on a credit card receipt.

See Also: What are the various types of credit and debit cards available in India?

Credit Card Protection

Always feel free to inform and express appreciation to your bank, credit card issuer, or merchant for providing an opt-out in case of mis-leading of credit card information. You can also tell pollsters, the media and others that you patronize companies that follow good privacy policies with respect to consumer information. As you learn more about how businesses use financial and consumer information, you can gain more control over it and reap personal benefits.

Loans and Credit Card Payments - What you need to know?

We all are burdened by the vagaries of life. Loans simply add to it. Cheer up! Remember the less you have the more there is to get, credit cards are like mosquito’s you can keep them away for a while but sooner or later they will come back to suck your blood.

Here the main factor a person needs to consider is Do I really need a loan. We notice nowadays that people take loans just on their whims and fancies. I see my neighbor with a new car, I want it too. He has the latest laptop I want it too. I do not consider my purchasing power but just make a quick purchase even if I have to take a loan. Here I need to take the following decisions. Financial Planning helps us to make these decisions.

Loan is basically a debt taken by the borrower that is the person who takes the loan, from the lender that is the person who gives the loan. Here the amount borrowed is the Principal which is to be repaid along with a certain additional charge called the Interest, paid back in regular installments for a certain period of time. Here the interest portions are the incentive for the lender to lend money to the borrower. We all know that nobody gives anything for free…on a lighter note I don’t find it hard to meet expenses .They’re everywhere…

Should I Make the Purchase Now?

Is this product really necessary for my well being? Can I live without it? Is it a necessity for my day to day activities? Remember do not try to walk before you can crawl.

Can I Make The Payments On Time?

Here we need to carefully introspect and answer these questions. Does my salary justify the purchase of this particular product? Am I a victim of mis-selling?  If you think no one cares if I am alive try missing a couple of your loan payments.

Do I Have A Backup Plan For These Payments?

If yes am I sacrificing better sources of investment in lieu of these payments? These are the questions we need to answer.  Am I making an informed decision? For any questions regarding loans and types of loans contact IndianMoney.com to make an informed decision and get a general overview of the loan sector.

How Fast Can I Pay Back The Loan?

Nobody likes to be burdened by a loan and faster it is paid off better it is for all parties involved. Here one needs to consider the most comfortable time frame by which he can pay off the loan. A loan not only burdens the debtor but also his family. Remember if you can’t be good be careful.

Should I Purchase a Less Expensive Item?

A person should always weigh the need to purchase a particular item. Do I really need this particular item?Is it a luxury or a necessity. Once he makes the necessary conclusions after weighing the pros and cons he needs to take an informed decision. Remember half a loaf is better than no bread.

Do Not Fall For Marketing Tactics and Gimmicks:

A number of new products such as mobile phones and smartphones are released every month which captivates our mind. We should not fall for such misleading tactics and buy only what we require. Do not argue with an idiot. He will drag you down to his level and beat you with experience.

Never Bite More Than You Can Chew:

Here we need to follow a simple golden rule. Never Borrow More Than You Can Repay. Here borrowing can become a bad habit and the person may borrow more than he can repay. This is similar to gambling where a person is in a high state of euphoria during the state of the game and keeps playing on borrowed money. This might take away money from certain important needs and the person might have to compromise on his day to day needs such as paying his day to day expenses, and the amount payable keeps accumulating until it becomes too hot to handle. Let us consider the worst case scenario where a person has taken a loan against collateral or a guaranteed loan. He is not able to repay the loan amounts and this might lead to an eviction from his house if it is on mortgage, a car repossessed by the bank in case of a default on car loans or business equipment and investments lost in case of a business loan default. This results in a financial and emotional loss to the borrower. Is this right on the part of the borrower to put his family in such a mess?  Here in order to understand the loan sector and types of loans you can read  IndianMoney.com.

SEE ALSO: Check Credit Score Online

We come across cases where a student takes an educational loan and does not repay the amount as he believes the bank would write off the particular amount.W hat are the consequences of such actions. Would any other financial institution or bank come to know of it?

Bankers and other financial institutions across the country report the credit information of the borrowers to CIBIL (Credit Information Bureau of India).It helps to eliminate cheating and fraud from the system. I would like to remind all of you that the team of  Financial Planners at IndianMoney.com are always there for you to plan your Insurance needs in a most efficient manner. You can explore this unique Free Advisory Service just by giving a missed call on 02261816111.

SEE ALSO: How To Improve Credit Score? 

So What Does CIBIL Do?

  • CIBIL is a credit Information Company which helps businesses secure loans faster and on better terms. This helps to eliminate fraud from the system.
  • CIBIL maintains and collects records pertaining to loan repayments and credit card bill repayments of individuals submitted by banks and other financial institutions on a monthly basis. It then assigns credit scores to loan applicant s which helps evaluate loan applicants for banks and financial institutions.
  • Credit scores are assigned on values ranging from 300-900. Banks generally prefer a rating of 700 and above.

SEE ALSO: Credit Score India

Play Safe:

So how does all this affect a loan applicant and his chances of securing a loan?  Here we need to consider the CIBIL TransUnion Score, a number basically between 300 - 900. In simple language this provides banks the customers who are likely to repay their loans on time, their eligibility to be provided with more loans. In simple language, a score close to 900 means customers who are most likely to pay back loans based on their past loan repayment history. If you have any complaints with regard to loans you have taken you can contact and post your complaint on IndianMoney.com.

Be Within The Safe Zone:

So what happens to a loan applicant with a lower score close to 300. This is a question which must be going through the minds of all who take these loans.

  • Late Payments or Defaults of loans in the recent past means you will be provided with a lower credit rating.
  • Credit Limits: When a person uses a credit card he can avail of an amount called credit limit similar to loan talk time provided by some Telecom   Companies on their prepaid cards. Similarly on credit cards, one can avail of such schemes.H ere CIBIL monitors the number of times these are taken up and higher the usage lower would be your score. This needs to be understood and monitored by the loan takers.
  • Take higher percentage of secured loans like Auto Loans and Home Loans rather than unsecured loans which are not covered by collateral. A higher proportion of collateralized loans means a higher credit score.
  • Credit Hungry loan applicants are viewed with caution as this indicates a debt burden already Borne by the loan applicant and his inability to service further debts.

Our New Year Resolutions:

  • Every Year passes and we make New Year resolutions which we try to keep. A very important resolution we all need to note is maintaining our credit credibility profile on a priority basis.
  • Know your score: Take time and effort to view and track your credit profile preferably online. View if it is properly updated.If a loan has been settled get the no dues certificate from the bank and see that the closure of the loan is updated in your credit records with CIBIL.
  • Maintenance Of Balance in your bank accounts: This is necessary for payment of dues as part payments do not help your credit score. This is necessary for paying your EMI and credit card outstanding amounts.
  • Consolidate Your Loan Accounts: Bring all your loans outstanding under a single umbrella. If you have four credit cards with a single bank with credit limits of   INR 50000  each restructure them such that you will have 2 cards of INR 100000 credit limit each. This improves your CIBIL score.
  • Repay any unsecured loans as soon as possible as they degrade your credit score. Try to get a loan against shares or property and securitize these debts.
  • Do not stand guarantor for any loans for frivolous reasons and make informed decisions as this might spoil your credit rating.

I would like to conclude this article with the phrase “Look Before You Leap” as it is futile to think back once a commitment is made. So it is essential to plan in advance what one wants from his money.

Caution while using a credit card

A credit card means you buy now and pay later. Your bank (issuer of the credit card) pays the amount for the product or a service right away and has to be repaid within a period of time. This card is very useful if you have to purchase a product immediately and have no ready cash. Nevertheless one needs to be careful while using a Credit Card.

Caution while using a credit card

Never overspend using a credit card

A credit card means buying now and paying back later. You tend to overspend (blow up cash) as money is paid back at a later date and you lose track of spending.

Use the card for a need not a want

The common tendency is to use a credit card for almost every purchase. Use the card wisely only for emergencies (medical or otherwise) and not for any whim and fancy.

Make a note of the billing cycle

A billing cycle normally consists of 30 days within which all purchases and repayments are accounted for and billed. An additional 25 days may be added to the billing cycle which constitutes the grace period. If you repay the total outstanding amount basically amount due on the credit card within this time period (billing cycle) no interest is charged on the borrowed amounts. So keep it simple. Never spend more than you can repay in the billing cycle and you will have a credit card where you purchase without having to pay an interest.

Know your credit limit

The bank sets a credit limit which is a maximum amount you can spend using the card. This depends on your salary. It could also depend on the number of other loans you have availed and are currently servicing (Repaying the EMI’s). You need to set a credit limit level (say 50%) above which you will not go resulting in a comfortable repayment. If you exceed the credit limit there is a fee you will be charged which varies from bank to bank.

Why does having too many credit cards affect your credit score?

Banks set a credit limit based on your salary and certain other factors. Higher the salary more is the credit you can avail. In order to escape from this problem and get a higher credit limit you may resort to availing credit cards from more than one bank. CIBIL deems this to be risky and assigns a lower score if too many credit cards are availed. Your credit score is maintained with CIBIL (Credit information Bureau of India Limited) called CIBIL TransUnion Score on a scale of 300-900. An ideal score is around 750.

Never miss your payments

What happens if you cannot pay back the borrowed amounts within a billing cycle? Banks decide a certain minimum amount which needs to be paid within the billing cycle. If this minimum amount is not paid a penalty is charged which could be as high as 5% of the outstanding amount on the credit card. If you fall back on payments regularly or default (do not pay back the remaining amount) on the credit card your credit score is severely impacted and you will be denied any future loans.

High interest rates

You have to pay a very high interest rate if the credit card dues are not settled within the billing cycle. Interest rates inclusive of service charges can be as high as 30-40% per annum on the amounts due.

Check for hidden charges

You need to read the terms and conditions before taking up a credit card. Banks charge a processing fee to cover their administration and other costs. This is a non refundable charge and you have to bear it even if your credit card application is rejected. Banks also charge handling fees. A severe penalty is charged for frequent delay in repayment which might cause you to default as you find the expense too high to bear and this affects your CIBIL score.

Can I use my credit card to withdraw cash from an ATM?

 Yes, you can use the credit card to make withdrawals from an ATM. If you do so interest is charged which might range from 3% per month as well as a transaction fee as high as 2-3% of the amount withdrawn. There is no interest free period (billing cycle) or a grace period. You have to pay interest as well as the transaction fee as soon as you withdraw the amounts.

Why is my credit card denied?

You see your friend swipe his credit card. The new laptop and Smartphone are soon his. You are tempted to do the same. You apply for a credit card with a bank. But surprise….The bank has denied you a credit card. You wonder why is my credit card denied?

The Age Restrictions

Banks issue credit cards if you are between 18-65 years of age. Banks generally do not issue credit cards to minors (Below 18 years of age), and senior citizens above (60-65 years) of age.

If you fall in this age group, banks believe that you do not have the necessary income to avail a credit card. You could fall back in repayments and default on your credit card dues. The bank would have to chase you to recover the dues. This means banks are reluctant to issue credit cards to senior citizens.

There are exceptions, and if a senior citizen has a good source of income, then the bank may issue him a credit card.

Your Income

Banks issue you a credit card, only if you earn a certain minimum salary. You need to have a minimum salary/income of over INR 1,80,000-INR 2,00,000 a year, for the bank to issue you a credit card.

Banks believe that you would struggle in your repayments if your income/salary is very low. More you earn, more easily would you be able to repay your credit card dues.

The Company Where You are Employed is Not Listed

If you work for a reputed Company (listed on the stock exchange), then the bank easily issues you a credit card.If you work for a nonlisted Company then the bank believes your job is not secure. You could be sacked and then you could struggle with your repayments.

The banks believe that in extreme cases the factory/Company could shut down making it extremely difficult for you to make your repayments. If you have a stable employment over many years, a high income and a good credit score then you might still be issued a credit card by the bank.

A Bad Credit Score

Banks send details of your repayments on earlier loans you have availed each month to Cibil.Cibil assigns you a score between 300-900.If you have defaulted or fallen behind on your repayments on your earlier loans, then Cibil gives you a low score.This makes it extremely difficult for you to get a credit card or even a loan from the same or any other bank.

This is Your First Credit Card

If you have never availed a credit card from a bank, no history of you exists with Cibil. This causes banks to be highly careful when issuing credit cards to a first timer.

The banks have no idea of your repayment history (Whether you would be prompt in your repayments or whether you would pay back the credit card dues at all).

It would be easier for you to avail a credit card if you take it from a bank where you already have an account (An existing relationship). Then you do not have to ask the question Why is my credit card denied?

So if the bank has denied you a credit card don’t be alarmed. Check for the reason and avail a credit card from your own bank if possible.

10 Smart Ways To Make The Most Out Of Credit Card

Credit cards have made buying things, easy and convenient. You simply buy now and pay later. Credit cards also offer various benefits like reward points, which have attracted many young people to credit cards.

Credit cards if not managed well, can be a disaster. The biggest mistake credit card holders make is they pay the minimum amount due on the outstanding balance. Just paying minimum amount due on credit cards may avoid penalties, but you still have to pay interest on the outstanding amount.

1. Choose that credit card which suits spending needs:

Consider spending needs and habits while choosing a credit card. Each credit card has different benefits and rewards. Select that credit card which will provide maximum benefits. Say you are a frequent traveler. A travel credit card that offers rewards like air miles, hotel vouchers and lounge access at airports is ideal for you.

2. Don’t buy more than you can repay:

Credit card holders tend to buy more than they can repay. This is why they fall into a debt trap. They overspend and struggle with repayments. Spending decisions should be based not on credit limit but on ability to repay.

3. Avoid paying minimum balance:

Banks don’t charge interest if you’re prompt in paying outstanding dues. People usually fall for the minimum balance option. This is a trick by which you get trapped and find it difficult to get out.

Paying the minimum balance against credit card dues avoids penalty on late repayments, but it still has disadvantages. The outstanding balance continues to attract interest at 2-3% a month.

4. Make Repayments in time:

Late payment of credit card dues not only attracts penalties and interest; it also affects credit score. Some banks also charge extra fees, if the ECS (Electronic Clearance Service) payment is not accepted.

5. Maintain a credit utilization ratio of 40% or less:

Credit utilization ratio is the amount of credit limit used, vis-à-vis the total credit limit available. Credit rating agencies consider a person with regular credit utilization ratio above 40%, to be credit hungry. Breaching this level impacts your credit score and lowers it. It reduces your chances of getting loans in the future.

If you are unable to maintain your credit utilization limit, request your bank for a credit card with the highest credit limit. A low usage on a high credit limit implies that you are not credit-hungry. This improves credit score.

6. Limit the number of credit cards you keep:

You should own a maximum of three cards. Having many credit cards only tempts you to spend more. Spending more means less savings and investments. To keep usage in check, you can dedicate one credit card for regular spending and the other for emergencies.

7. Make the best use of cashbacks:

Make the best use of cashbacks or reward points that credit cards offer on swiping. Rewards are offered when paying utility bills, movie tickets, and restaurant bills. So, be wise. Earn while you spend and redeem gifts on reward catalogues.

8. Keep a check on the expiry of reward points:

Earning reward points is meaningless, if you don’t use them well. Most credit card rewards come with an expiry date. So, keep an eye on this.

9. Get a credit card with low transaction fees:

If you use credit cards frequently, get one having low transaction fees. If you make a lot of international transactions, you may have to pay high transaction fees.

10. Use the interest-free period smartly:

Banks offer a grace period of 10-15 days (interest-free period) to make credit card payments after which they charge interest. You can leverage this interest-free period by making all your purchases at the start of the billing cycle. This gives you around 30 (billing cycle) + 15 (grace period) = 45 days interest-free credit.

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