Q1. What is the difference between a credit card and a debit card?
A debit card allows you to withdraw money directly from your bank account deposits. A credit card, on the other hand, is similar to a short-term loan from the card issuer that allows you to make payments or withdraw cash. Rather than repaying this short-term loan on a per-use basis, all of your credit card spending are combined into a single bill at the end of the billing cycle.
Q2. What is a secured credit card?
Secured credit cards function similarly to regular credit cards. The only difference between a normal and secured credit card is that the latter is issued against collateral, such as fixed deposits, to reduce the risk level for card issuers. Secured credit cards are beneficial for individuals with no or poor credit history. As a result, it is one of the easiest methods to enhance your credit score while enjoying the benefits of a credit card. Secured credit cards are issued in exchange for a fixed deposit, which decreases the risk for credit card companies. If you do not pay your payment on time, the credit card company may deduct the amount from your deposit.
Q3. What are the different types of credit cards?
Credit cards can be broadly divided into two categories:
- Standard Credit Cards – Plain credit cards with basic features and no annual fees.
- Specialized Credit Cards – Credit cards are designed especially to cater specific needs of the cardholder. These cards offer various privileges on dining, fuel, travel, etc.
However, credit cards can also be classified as follows:
- General Cards – Credit cards offer basic features and have relatively low annual fees. These cards are ideal for everyday usage.
- Reward Points Cards – Credit cards offer reward points to cardholders for every purchase. The more a cardholder spends the more reward points he/she earns. These reward points can be redeemed to get gift vouchers, coupons and more.
- Cash-back Credit Cards – Unlike reward credit cards which offer reward points, cash-back credit cards offer cash. On using a cash-back credit card a specific percentage of the cardholder’s expenditures are credited back to his/her account. The cumulative cash back earned is adjusted against the card account periodically.
Q4. How long does it take to apply for and receive a Credit Card?
Paisabazaar.com allows you to apply for a credit card online in less than 2 minutes. After you complete and submit the online application, the card issuer will contact you and request you to send the supporting documentation. Your application will be processed within two weeks after the bank receives your duly filled application form. If all of your documents are in order, you will receive your new credit card within 7 working days after your application has been accepted and all of the bank’s checks have been completed. The bank will provide you with timely information on the progress of your credit card application by SMS or via email.
Q5. How to know if I am eligible for a credit card?
You can know if you are eligible for a credit card by checking its eligibility criteria as mentioned on the bank’s website. You may also contact the customer service department of the credit card providers to ascertain your eligibility.
Q6. What does a credit limit mean? How can I get a higher limit on my card?
A credit limit is the maximum amount of credit extended to you on your credit card. Factors on which the credit limit of an applicant depends are his/her profile, the repayment capacity, CIBIL credit report, etc. However, to increase your credit limit, you can raise a request for the same with your provider. Upon raising the request your provider may ask for additional documents or may scrutinize your request based on factors such as credit score, financial status etc. If you are deemed eligible, your credit limit will be increased. Also, if you have paid your credit card balance on time, you may be eligible for an annual credit limit increase from your provider.
Q7. Do all credit cards come with an annual fee and joining fee? What are some other charges applicable on credit cards?
No, not all credit cards come with an annual and joining fee. For instance, the Amazon Pay ICICI credit card comes with zero annual and joining fees. But apart from joining and an annual fee, there are several other charges applicable on credit cards such as over-limit charges, late-payment charges, forex charges, etc.
Q8. Do credit cards charge interest rates for non-payment?
Yes, credit card providers do charge cardholders with penalties if they are unable to pay the due amount on time. Cardholders are usually charged with an interest of 3-4% on their outstanding amount. The amount to be paid is calculated based on the formula:
(Number of days counted from the date of transaction made X Entire outstanding amount X Interest rate per month X 12 months)/365.
Q9. Can I withdraw cash from an ATM using my credit card? Does it attract additional charges?
Yes, you can use your credit card to withdraw cash from an ATM. However, you withdrawing cash using a credit card incurs additional charges which may range anywhere from 2.5 – 3.5%.
Q10. What is the foreign exchange markup fee on credit cards?
When you make an international transaction, banks and credit card networks charge a fee to convert the currencies. Credit card networks such as Visa and MasterCard levy a fee of 1% of the transaction amount. Many banks additionally impose a mark-up fee ranging from 0.99 % to 2.5 % of the amount.
Let us understand the foreign exchange markup fee on credit cards:
Consider the following scenario: you paid 3,000 USD for an item, and the currency rate is 1 USD = INR 70. The payment amount in INR in this situation is Rs. 21,000. If the foreign exchange mark-up fee is 3.5 %, the extra amount you must pay is Rs. 735. (3.5 % of 21,000). The charge will also be subject to GST at the rate of 18%.
Q11. How to earn rewards on credit cards? How to redeem them?
Reward points can be earned on making purchases through your credit card. The rate of earning reward points differs from bank to bank and from card to card. On a particular purchase, 1 card may let you earn 1 reward point while the other may let you earn 5. Also, the value corresponding to 1 reward point varies from card to card. To redeem these accumulated reward points you can use different modes such as netbanking, offline (via post), customer care or directly redeem the points at the stores.
Q12. Should I choose cashback credit cards or rewards credit cards?
On using a cashback credit card a specific percentage of your expenditures are credited back to your account. The cumulative cashback earned is adjusted against the card account periodically. On the other hand rewards credit card offer rewards on almost every spend and at minimal value. For instance, you can get 1 reward point for every Rs. 100 spent, but there is always a higher threshold to get a cashback. Also, while choosing between a cashback and rewards credit card, you must delve into knowing the value benefits of the cards. Another thing to keep in mind while making this choice is your requirement, if you are looking for a card that offers multidimensional benefits, rewards credit cards may be best suited for you. If you are interested in using the card primarily for a particular type of expenditure such as dining, fuel or movie tickets, a cashback card that offers premium rewards in those categories would be perfect for you.
Q13. What is the total due and minimum due on credit cards?
While the total amount due is equal to your total card expenditures in any given billing cycle, the minimum amount due is only a fraction of the total amount spent. You don’t have to pay anything extra if you pay the whole amount due on your card. Paying the minimum amount due or any amount greater than the minimum amount due but less than the total amount due, on the other hand, would suggest that you would be charged interest on the balance amount.
Q14. What happens if I don’t pay my credit card bill on time?
If you do not pay your total credit card bill by the due date, you will be charged finance charges on the outstanding balance. The interest charges for non-bill payments typically vary between 30 and 49% every year. In addition, failure to pay the total bill may result in the suspension of the interest-free period on new credit card transactions. Also, all new credit card purchases would incur interest until the bill is fully settled.
Q15. What are co-branded credit cards? Should I apply for one?
Co-branded credit cards are those that are introduced in partnership with well-known businesses and give additional privileges when customers use the particular brands’ products or services.
Q16. What is an add-on credit card?
Add-on credit cards are credit cards that are issued in addition to a primary or original credit card. These are the additional cards that can be obtained for family members such as a spouse, children over the age of 18, or parents. Normally, add-on cards are free of charge; but, depending on the bank, there may be certain fees. In certain circumstances, a fixed number of add-on cards are free, but everything beyond that is charged. The primary card is linked to all add-on cards.
Q17. Can I convert my credit card purchases into EMIs?
Yes, you can convert your credit card purchases into EMIs.
Q18. What is a credit card balance transfer?
A credit card balance transfer is the transfer of one credit card’s outstanding amount to another. This is a tactic used by many lenders (banks) to entice clients to switch to another credit card. The balance transfer is done primarily to take advantage of low-interest rates and avoid any existing debts on credit cards.
Q19. What are the different components of a credit card statement?
A credit card statement might be difficult to interpret for a first-time user since it is very detailed and therefore, may appear to be quite complex. To make it easier for the users to understand their card usage and dues, credit card providers divide the statement into parts and subsections for better understanding. Following are the details that can be seen on any credit card statement:
- Card holder’s personal details such as the name, email and residence address
- Account Summary such as the finance charges, opening balance, total dues, payments made, purchases, etc.
- Past Dues include one-month dues,over-limit charges, current dues and the minimum amount due.
- Domestic Transactions stating the date, amount and description of the transactions
- Reward Points summary including opening balance, adjusted balance and closing balance of reward points on the credit card
- Any offers tailored for customers
- Important information regarding the terms of the bank
To know more about a credit card statement in detail, click here
Q20. What is the credit utilization ratio?
A credit utilization ratio or credit utilization rate can be defined as the percentage of credit being utilized from your total available credit limit. You can calculate your credit utilization ratio using the simple formula
Credit Utilisation Ratio = (Total Outstanding Amount/Total Available Credit) X 100
Your credit utilization rate is one of the most important factors that credit bureaus consider while calculating your credit score.