What is a Credit Card?

Credit cards are issued by banks and other financial institutions to provide consumers with an account that they can use to pay at a variety of merchant locations, from fuel to dining to online transactions and more. When you use a credit card, you are taking out a loan from the issuer instead of using your own money. If you pay off your balance each month, then you will not be charged any interest. Interest is a fee based on a percentage of your outstanding balance with the issuer and charged from you for the convenience of using the card issuer´s money.

Benefits of a Credit Card?
Credit cards allow you to spend money without carrying a lot of cash around and without writing a cheque. They´re extremely convenient, especially when you´re on a trip or don´t have access to cash. Besides, most of the online transactions can be carried out only through credit cards and not cash.

Types of Cards?
There are three basic types of cards - credit cards, debit cards and prepaid cash cards. Credit Cards, such as those issued by Visa and Master Card, extend credit to you and you must pay a minimum balance each month. That balance ranges from about 2% to 10%.

A debit card, which is often issued by a bank or other financial organization, deducts cash that you have on hand from your account. With a debit card, you are using your own money and when you run out of money, you´re unable to use the card until you replenish the cash.

Pre-paid cash cards are similar to debit cards except that they are not necessarily linked to your bank account. You can purchase a pre-paid card with cash and then carry it more conveniently, and also use it for online transactions.

What are Silver/Gold/Platinum cards?
Based on your application, credit card companies determine your suitability for issuing silver, gold, platinum/titanium cards. In general, the higher the level of the card, the higher the rewards and benefits like lower interest rate, exclusive discounts and memberships, higher credit limits you receive. Most of the offers run by credit card companies also tier their discounts based on the level of your card. For example, a platinum card will get you better offers than a gold card, a gold card will get you better offers than a silver card and so on.

What is cash-back?
Most credit card companies run promotions through tie-ups with various businesses. If you spend money at those locations using the pertinent credit card, you are entitled to get back some percentage of the amount spent. This amount is called a cash-back and is generally credited to your account in the next billing cycle after the purchase is made.

What is fuel surcharge?
In general, you are charged around 2.5% fuel surcharge whenever you pay for fuel using your credit card, unless it is explicitly mentioned that these charges are waived. Many gold cards and above come with an offer where these charges are waived.

What is a petrol card?
Many card companies have tie-ups with different petrol companies where you get various incentives to use your credit card for fuel payments at particular outlets. The incentives vary from fuel surcharge waiver to 5% cash-back to extra reward points for every rupee spent through the card on fuel. Cards that give you such incentives are called petrol cards.

What are rewards cards?
Credit card companies incentivize users in different ways to use the card for making payments. One of such incentives is reward points, wherein you accumulate reward points for every rupee spent using your card. These points can later be redeemed for goods and services, depending upon the issuing bank´s offer. Credit cards that help you accumulate such points are called rewards cards.

What is an issuing bank?
Most big banking companies such as ICICI, Citibank, HSBC, SBI, HDFC etc. have credit card divisions that issue credit cards to consumers. The company that issued you the card in this case is called the issuing bank.

What kind of card can I use for online shopping?
Most online shopping websites accept only credit cards, though some do accept debit and pre-paid cash cards. While shopping online, you normally need the name on the card, issuing bank´s name (ICICI, Citibank, SBI etc.), card expiry date, card network (MasterCard, Visa, American Express etc.) and CVV number to complete the transaction.

How do I pay my credit card bill?
Credit card bills can be paid in various ways - through online funds transfer, depositing a cheque at the bank, depositing cash at the bank etc. Some cards also provide you the facility of sending a representative to your address to collect the payment. Your card will allow one or more of these ways to make payments, which can be checked with the issuing bank.

What is CVV number?
CVV stands for Card Verification Value. This is normally a 3 or 4-digit code at the back/front of the card, used as an added security feature for online transactions where the card is not presented to the merchant.

How is a pre-paid cash card useful for me?
In many instances where you might not have access to a credit card, pre-paid cash cards can help you make online transactions and other payments. Besides, if you want to limit the amount of money being spent through a card, pre-paid cash cards can be of great use for you.

How is a debit card useful for me?
Debit cards are directly linked to your bank account and there is no borrowing on money involved from the issuing bank. This keeps you free from paying the interest to the bank. Debit cards also limit the amount you can spend to what you have in your account. However, one of the drawbacks might be that debit cards in general cannot be used for online transactions.

What are co-branded cards?
Most issuing banks have tie-ups with different merchant locations to give you added incentives to make purchases at them using the particular credit card. The added incentives can be in the form of cash-backs, reward points (or airline miles in case of airlines)or other discount schemes.

What are MasterCard, Visa, American Express etc?
MasterCard, Visa and American Express are the three primary card networks in India. Every card, in addition to being issued by a bank, is affiliated to one of these networks which decides where the card would be accepted for payments. Most merchant locations accept MasterCard as well as Visa, and increasingly American Express as well. So a typical card would be an ICICI Visa Card, Citibank MasterCard etc. The card networks also run offers with various merchants where you get incentives to use a particular network card for making a purchase.

How to Get a Credit Card?
You probably receive numerous calls to get a credit card each week. To get a credit card you will need to apply, furnishing some basic information that will allow the card issuer to verify your details and assess your credit worthiness. When applying for a card, it´s important that you fill out the form accurately and truthfully. Your income, qualification and profession will help determine what type of card you can qualify for.

How to Choose a Credit Card?
If you receive numerous calls from various credit card companies, you may find yourself in the enviable position of choosing the credit card that is right for you. Carefully study the offers to see exactly what you will receive.
Look for a card with a low interest rate or no interest rate. Be aware that often this rate applies to only balance transfers and is usually given for a limited time, often from a few months to a full year. If you aren´t interested in transferring balances from another high-interest card, then simply choose a card with the lowest interest rate possible.
Check out the policies and penalties for late payments, over limit spending and cash withdrawals. You may also want to consider if the card has any discounts associated with it, rewards programs or cash-back incentives. Some issuers have a forgiveness program where your first late payment does not put your low annual percentage rate (APR) in jeopardy and late fees are waived. This is a feature worth considering.

What are Good Credit Card Usage Practices?
If you use your credit card responsibly and make payments in a timely manner, you´ll keep yourself in a good situation. In order to make sure you enjoy all of the benefits of possessing a credit card, you must:

• Pay your bill on time and pay at least the minimum required.
• Do not go over your credit limit.
• If you lose your card, report it immediately.
• If you see any suspicious activity or notice any unwarranted charges, report them.
• If the credit card company contacts you, be sure to respond.
• Never give your card or personal identification number (PIN) to anyone else.

A credit card can be a useful tool, giving consumers more buying power, flexibility in spending, power to make online transactions, and the convenience of not having to carry a lot of cash or write cheques.


Credit Card Glossary - Most Commonly Used Terms:-
Annual Fee - A charge levied each year by the issuer of the credit card for the privilege of using the card. It is sometimes called a participation or membership fee. Many credit cards have no annual fee.

Annual Percentage Rate (APR) -The APR is generally expressed as a monthly interest rate that is generally charged on any part of your balance that is not paid by the due date.

Balance Transfer - A balance transfer occurs when you take the balance from one credit card and move it to another one. This is usually done because the card that the balance is being moved to has a lower APR than the card presently carrying the balance. Transferring the balance saves money in finance charges. Before completing a balance transfer, consumers should carefully check when the low APR on the new card expires and if there are any fees associated with the transfer.

Cash-Advance Fee - Most issuers apply a fee whenever you use their card to get cash. It may either be a standard fee levied on each cash-advance or a percentage of the total drawn on the credit card. There is usually no grace period for a cash-advance, which means interest is charged from the day that the money is drawn.

Credit Limit- This is the maximum amount of money that the issuer will allow you to place on their card. Credit limits may be increased or decreased periodically depending upon your usage and a re-evaluation of your credit worthiness.

Finance Charge - This charge is determined by multiplying your monthly periodic rate by your average daily balance and then other fees may also be added on, such as late or over limit charges. The result is the finance charge for that month. In essence, it is the interest the lender bills each month on the loan you´ve taken by using their cash. Finance charges vary from card to card and from transaction to transaction.

Fixed Interest Rate- Unlike a variable interest rate, this type of rate is set and does not fluctuate with the interest rate index. A fixed rate is designed to remain unchanged despite the ebb and flow or the financial marketplace, but it can go up if you do not pay your minimum on time, go over your credit limit or, after review by the issuer, are deemed to be more of a credit risk than you were in the past.

Grace Period - With many credit cards there is an interest-free period, the grace period, which extends from the billing date to the due date. That means that as long as you pay your balance in full by the due date there will be no interest charged on the purchases for that month. The standard grace period is 22-days. If there is no such time allowed, then interest is calculated from the date of purchase. Carrying a balance on your card negates the grace period.

Late Fee- This is charged when your payment does not arrive by the due date.

Minimum Payment- This payment, which is calculated as a percentage of the account´s balance, is the least amount of money that a cardholder can pay and still keep their account current and in good standing. It ranges from 2% to 10%. If you have a Rs 5000 balance on your account and the minimum payment is 3%, then the minimum payment would be Rs 150 for that particular month.

Over Limit Fee- This is a flat charge for exceeding the credit limit established by the issuer of your card.
Payment Due Date - This is the date, found on the front of your credit card statement, by which your payment must reach the credit card company.

Personal Identification Number (PIN)- A PIN is a four or six-digit number that acts in tandem with your credit card, allowing you to get cash advances from an ATM or to pay for goods without signing for them. PINs should never be shared. If you discover that someone knows your PIN, it should be changed immediately.

Prepaid Credit Card- Pre-paid cards are similar to secured cards except that the cash you put towards your credit is kept in a savings account. Thus, you are using the issuer´s money but securing the card with your own cash. If you put Rs 5000 into your account, then you receive Rs 5000 in credit.

Previous Balance- Any outstanding balance on your account after your monthly payment is made is considered to be the previous balance. If your account is paid in full, then your previous balance for the new billing cycle would be Rs 0.00; if you paid Rs 3000 on a balance of Rs 5000, your new statement would reflect a previous balance of Rs 2000.

Purchases/New Charges - These exclude any previous balance. Purchases or new charges reflect your buying activity for the latest billing cycle. Adding this sum to your previous balance, new balance transfers, cash advances, finance charges and fees results in your total balance on the account.

Variable Interest Rate- This type of rate reflects the periodic changes in the interest rate index, and thus it can result in an altering of the amount of interest you´re charged.