13 Things You Need to Know About Credit Cards

Credit cards are issued by financial institutions and help to borrow money from them to make payments for goods and services. The credit card holder must pay the borrowed cash plus additional charges (if any).

It is a huge milestone and adjustment to get your first credit card. Although you may already know how credit cards operate and how to use them responsibly, the devil is always in the details—before getting started, learning the ins and outs will save you money and hasten the process of building good credit.

Here are 13 Things that You Need to Know About Credit Cards in India-

1) Your Income

When one applies for a credit card, numerous questions are asked—credentials like age, address, in-hand income per month, and employment type.

But from all the information asked, the information regarding your income is the most important because it decides your repayment capacity each month.

Higher income indicates your ability to pay bills on time and consistently. So if someone earns Rs.60,000 per month, they are more likely to be eligible for a credit card than someone making Rs.25,000 per month.

The income you earn is also essential for the bank to set up your credit limit at the time of issuance of the credit card.

2) Your Credit History

Your past credit history significantly matters if you apply for a credit card. Credit Information Bureau (India) Limited (CIBIL) reports are checked to know the credit history before you get the credit card (generally for a second credit card). This report also reflects if you have taken an education loan, personal loan, car loan, home loan, etc.

It checks the payment status of the loan taken by you and whether the payments are on time or delayed. The CIBIL report also states the latest credit score.

3) Types of Credit Cards

You must be familiar with the various kinds of credit cards available in India. For instance, you can choose a credit card with a low annual fee if you are new to using credit cards. Additionally, you can select a credit card based on your needs and demands, such as a fuel credit card, a travel credit card, a shopping credit card, etc.

4) Your Income

The credit card issuers will inquire about your income to evaluate your potential for repayment. When applying for a credit card, your income is crucial. It proves to the credit card company's issuer that you can pay back your bills. As your income bracket climbs, the card options proportionally do as well.

5) Credit Card Interest Rate

You need to know and understand the interest rates applicable to credit cards. Ideally, you will choose a credit card with low-interest rates, the lowest fee, and maximum benefit.

But getting a credit card with all the above offers is not easy. Pick a credit card according to your preference and priority. No one wants to pay excess interest on credit cards, so be aware!

6) Start with Low Credit Limit

The card issuers will first offer you a low credit limit to reduce the risk. Then, the card providers will give you a choice to raise your credit limit if you establish strong credit card management practices. Additionally, the credit limit is based on your income. Therefore if you earn a low wage, your credit limit would be lower.

7) Essential Credit Card Terms and Conditions

The terms and conditions contain information you agree to when you use the card. Therefore it is essential to be aware of them thoroughly. First, read up on the card's APR range, applicable fees, the rewards card, and all other critical details. Then, spend sufficient time analyzing the terms and conditions in tiny print.

8) Interest: How Does It Apply?

You will be utilizing the bank's money for free if you pay off your credit card amount in full and on time because you will not be subject to interest fees. However, you will be charged interest on the balance by your card's APR if you carry the balance from one month to the next (Annual Percentage Rate). Generally, the APR ranges from 30 to 40%.

9) Grace Period

A grace period is when the issuer does not charge any interest on the transactions made if you pay off the new balance before the payment due date. The grace period begins at the end of the billing cycle and lasts until the next payment due date. If you miss the deadline to settle your debt in full and lose the grace period, you will be charged with interest on the outstanding balance.

10) Fees and Charges Related to the Credit Card

Beware!

Credit cards have hidden charges like late payment, renewal, processing, over-limit fees, cash advance charges, foreign transaction fees, and joining fees. So it is essential to know about these charges beforehand.

Since the bank balance remains the same after paying through a credit card, it might be tempting to keep using it. However, the user must possess the high-interest rates in mind because they might apply after the interest-free period.

11) Late Payment Penalty

You should be aware of the penalties you could face for making a payment on your balance after the stated due date. In addition, if you pay late, you will be subject to additional charges. The creditors may also report your late payment to the credit bureaus, damaging your credit history and downgrading your credit score.

12) Keeping your Credit Utilization Ratio in balance

Regardless of your credit limit, keeping an eye on your spending is essential. Even if your repayment history is honorable, a higher utilization ratio cannot be deemed good because it affects your overall credit health.

13) Facility of EMI

A credit card helps in deferred payments if you want to make a big purchase and do not want to sink into your savings. You can also choose to make equated monthly payments if you so wish.

It helps you because you are not paying a lump sum for the purchase made. It is always better to pay through EMI rather than take a personal loan to make that huge purchase.

Conclusion

On the one hand, applying for your first credit card is an outstanding achievement, but it's also not easy. It would be best to thoroughly comprehend how a credit card functions in reality and carefully review all of the terms and conditions pertinent to it.

You can save money and improve your credit score by knowing the odds and possibilities before choosing one.

Happy Investing!