Credit Cards
Credit Cards are one of the most versatile financial tools by which you can pay for everyday purchases and earn rewards. They offer convenience, secure transactions, and help with bill payments. However, knowing its process of working is equally important when you are planning to get one. Read this post and explore what is a Credit Card, its benefits, how it works, along with the interest rate it carries.
What Is a Credit Card?
Credit Card can be understood as a card offered by leading banks like ICICI Bank, which makes payments easy and hassle-free. This helps to eliminate the issue of carrying physical cash. The bank also sets a certain credit limit on the card up to which you can spend in a month which is often based on your eligibility and creditworthiness.
Furthermore, you can repay the bank later according to the due date and the billing cycle. The billing cycle is the period for which transactions are recorded, lasting for 30 days. The grace period is the time between the billing date and the due date, during which no interest is charged if you pay in full. If you cannot pay the full amount, you have the option to pay the minimum due, which is a small percentage of the total bill. You can also convert the bill into monthly EMIs.
Benefits of Using a Credit Card
Here are the key benefits of using a Credit Card:
- Ease of Payments
One of the biggest benefits of using a Credit Card is convenience and flexibility. You can shop online or offline without carrying cash, pay bills, book tickets, and subscribe to services easily.
- Interest Free Period
Another advantage is the interest-free period, which allows you to spend without interest for up to 45-50 days if the bill is cleared on time.
- Build Credit Score
Using a Credit Card responsibly can help build your credit score. Timely repayments improve your CIBIL score, which can help in getting loans at better interest rates.
- Rewards and Cashback
Many Credit Cards offer rewards and discounts, such as cashback, reward points, and exclusive deals on shopping, dining, and travel.
- Helps When in Need
A Credit Card also acts as an emergency fund. In situations where you need quick access to money, a Credit Card can be a lifesaver, provided you manage the repayments wisely.
How Does a Credit Card Work?
When you swipe your Credit Card at a store or enter details online, the bank processes the transaction and pays the merchant on your behalf. You, in turn, need to repay the bank. To use a Credit Card, you make a purchase at any merchant that accepts card payments. At the end of the billing cycle, the bank generates a statement summarising all transactions. You can pay the full bill before the due date to avoid interest, pay the minimum amount due and carry forward the remaining balance (which will attract interest), or opt for an EMI conversion on large expenses.
Understanding Credit Card Interest Rates
If you don’t pay your full bill by the due date, Credit Card interest rates apply to the outstanding amount. These rates are often high and are charged on a daily basis until the full amount is repaid. Interest is calculated based on the outstanding balance, the bank’s interest rate (which may range between 30-49% annually), and the number of days you delay the payment.
To avoid paying high interest, always try to pay the full bill before the due date. Avoid withdrawing cash using a Credit Card, as cash advances have no grace period and attract high interest. If you have a large bill, converting it into EMIs can help manage payments with lower interest rates. Setting up automatic payments is another way to avoid missing due dates.
How to Choose the Right Credit Card in India?
Below are various ways by which you can choose a Credit Card in India:
- Analyse Your Needs
Choosing the right Credit Card depends on your spending habits and needs. Assess your requirements before applying for a card. If you travel frequently, a travel Credit Card with benefits on flights and hotel stays may be ideal. If you shop often, a cashback or rewards Credit Card can be more beneficial.
- Compare Rate of Interest
Comparing interest rates is important. Always check and compare the rate of interest from all major banks because a Credit Card with lower interest rates can reduce the financial burden in case you need to carry a balance.
- Know About Rewards and Other Benefits
Check the rewards and benefits offered by different Credit Cards. Choose a card that provides maximum perks, such as reward points, discounts, or lounge access.
- Know Annual Fees
Some Credit Cards come with an annual fee, while others offer lifetime free benefits. If you do not want to pay an annual charge, look for no-fee Credit Cards. Remember lifetime free Credit Cards simply means cards with zero annual fees.
- Check for Credit Card Loan
Credit Card loans are a great way to use your card to borrow money and pay later in EMIs in times of financial emergencies. If you frequently make large purchases, consider a Credit Card with EMI and loan facilities. This allows you to convert high-value transactions into easy monthly payments.
Conclusion
A Credit Card is a powerful financial tool when used responsibly. It provides convenience, rewards, and financial flexibility, but improper usage can lead to high Credit Card interest rates and debt. Always pay bills on time, avoid unnecessary borrowing, and choose a card that best suits your needs. With the right approach, a Credit Card can enhance your financial well-being and lifestyle.
