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Use your credit card in a better manner wisely

Sun, Aug 14, 2016, 08:20 AM
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Is it possible to get loan in a minute? Is there anyone who would provide loan whenever and wherever you want? How to get loan without asking anyone in a royal way? An answer to all these questions is credit card. It may be mentioned here that credit means loan. Like there are two sides to a coin, for any issue there will be good and bad. It applies even to credit cards. A credit card is one such facility which provides loan without any interest. However, if something goes in a different way, it would grab additional interest on it. That is why learn about the credit card once in a proper manner.

Loan without any interest

Each credit card will have certain limit. In case you reach the credit limit, you should repay it in certain due date. If you repay the amount in the specified date (including grace period), there will not be any kind of interest. At the most the grace period will be 50 days. You know how this grace period will be calculated... each month there will be a bill cycle. For example if the bill cycle is between June 20 and July 19, the due date will be August 10. That means, if the credit facility is used within the bill cycle period, you should pay the entire amount by August 10. 

In case, if you consume the credit limit on June 20, you will have the facility to pay the amount on August 10 which is the due date. That means 50 days. However, if you consume the credit limit on July 19, you will have only 20 days time as the due date is August 10. In case due date exceeds, the effect will be embarrassing Whenever a credit card is available with higher limit, people will not look for the consequences and grab it. Generally the interest rate will be 1.99 per cent to 3.5 per cent (monthly interest). 

In case, if you pay the amount within the due date, there will be no interest problem at all. However, in case the due date exceeds, it will be better to clear the credit as early as possible. Or else, there will be interest on the interest (compound interest). Then there is a possibility that your credit card jumps into credit quicksand.

For instance the interest on the credit is 1.99 per cent per month, the interest will be 24 per cent per annum. In case, there is a compound interest, it will go up further to 30 per cent. For example if you have Rs 1 lakh credit limit and consume it totally but did not pay it in time, then as per compounded annual growth rate, the credit due would go up to Rs 7.9 lakh within five years. That will be the credit stroke.

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Cash back offer for credit card purchases

Many banks are offering cash back facility for credit card purchases. However, we should know about such offers beforehand. In case we are aware of such facility, we could make use of credit cards at restaurants and have a sumptuous lunch/dinner, but gain some 20 per cent through cash back facility. Likewise, if you make purchases in certain malls, we could get credit reward points. For every Rs 100 purchase there will be certain number of points.

For example, for every Rs 150 purchase, the HDFC bank awards 5 reward points. After careful examination of credit card organisations’ websites, we could get knowledge on the list of restaurants and malls. Likewise, there will be several discount offers for credit card purchases through online shopping. Moreover, you can make purchases in online shopping through EMI schemes if you possess a credit card immediately. Several offline stores will also have the facility to purchase articles through EMI schemes. However, for such EMI payments there will be some interest charges. Even for the flight ticket purchases and travel packages this discount will be available.

Emergency Fund

Ramesh’s father had a heart attack suddenly on one day and he was immediately shifted to hospital. The hospital claimed that the total expenses would be Rs 5 lakh and immediately deposit Rs 2 lakh. Unfortunately, there is no health insurance also in the name of Ramesh’s father. Ramesh has only Rs 50,000 on hand. Fortunately, Ramesh has a credit card which has Rs 1 lakh limit and his friend had helped Rs 50,000 through his credit card. So, Ramesh could come out of the dangerous situation.

Ramesh need not stretch his hand before some pawn broker to get loan on heavy interest rate because of the availability of credit card. Though there will be some interest on credit card too, we need now bow down before some other and save our prestige. Like this, the credit card will help us in emergency situations.

Cash through credit card

You can also withdraw money through ATMs with the help of credit cards. We could also get credit with the help of card. In any credit card there will be cash credit facility to a very less per cent. In case, if you get loan, you could get a higher amount. Interest on credit card withdrawals will be higher than personal loans.

Abroad usage will be easy

The credit cards could be used easily in foreign countries. There will be no need to exchange our currency. Not only you can make payments abroad through credit cards but also you can get their currency as well. However, such facility is not available for debit cards. 

Which card is being used by many people?

According to a survey over 28 per cent people in our country are using the HDFC credit cards. Next comes the ICICI credit cards by 23 per cent, Citi Bank credit cards by 19 per cent, SBI credit cards by 11 per cent, Standard Chartered Bank credit cards by 7 per cent, HSBC bank cards by 4 per cent while other company credit cards by 7 per cent.

Before using credit card...

We should make purchases on credit card to the extent as to how much we can repay within the due date. Otherwise, the credit will become a problem. We should also examine our credit card statements regularly (every month), so that we could realise whether any additional charges are being levied. Don’t take any credit card just because it is being given free of cost. You should also check the credit report by Credit Information Bureau (India) Limited (CIBIL). In case of any errors, it should be corrected. Never share your credit card number or its pin number and don’t write it down on any diary as it will be dangerous in case of misplacement.

Annual charges and additional payments

On credit cards there will be several types of charges generally. In case of late payment there will be penalty, tax, cash withdrawal charges, annual maintenance charges etc. Though the customer care executives woo the customers that the annual fee will be free, they would be levied either from the second year or third year. So, we should also take this into account. 

The annual fee would begin with a minimum of Rs 200. Another big difficulty is that the there will be service tax, annual charges, other fee, and service tax of 15 per cent on interest on credit cards. Even for the duplicate statement too, there will some charge. Likewise, while doing online shopping, in case the amount has to be paid in foreign currency then also there will be some charges. Though the card is issued without any annual fee, we should revive the card within the due date. From then onwards we should pay the annual fee. Even if we take a DD from a bank using the credit card, there will be separate charges.

Facility in bill payment

Almost all the banks are permitting the customers to make the credit card payments through net banking process. Of course, we can also make payment through cheque or in the form of cash. Though the cheque was given before the due date, we should ensure that the cheque is processed before the due date. Otherwise, there will be penalty in and also the interest.

Services and transparency

You may have several doubts about your card. You call up the customer care to know the details, they should be able to explain everything in detail. Then only we can be satisfied. In case they are ambiguous and namesake replies, we will get irritation. Hence the services should be very important. 

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One card or two...?

In case the existing credit card limit is not sufficient, then you can take one more card from another bank. If the repayment history is good, the banks will enhance the credit limit on their own. In case, the bank did not enhance the credit limit, you can obtain another bank’s card. Moreover, if you have a Visa card and at some places only the Mastercard might be accepted. 

Or there may be different offers on a particular card (Visa/Mastercard) and they may be beneficial and profitable. In such cases, different cards will be useful. However, when the number of cards is increasing then the responsibility and burden will also increase. In time payment, restriction of expenditure is a must in such case. Over 10 per cent people are maintaining four cards. As per available information each individual has two cards, on an average.

Different types of credit cards

Banks and other financial institutions are extending different types of cards. Standard credit cards are the ones that are being given generally. For this, there is no need of any deposit. There another type of cards called secured cards. These will be given based on the surety of fixed deposits. The credit limit depends on the amount deposited in advance. There is one more kind of credit cards, which are prepaid cards. To obtain this kind of credit cards, we should deposit money earlier. 

Some partnership firms release speciality credit cards. For example, the ICICI Bank is in tie up with Indian Oil Corporation and issue certain cards and whenever we use such card at that petrol pump we could get some rebate in the price of petrol. On the partnership cards of Kotak and PVR organisations, if the card is used for purchases worth Rs 7,500 a month, then two movie tickets could be obtained free of cost. Another best example for this partnership card is SBI card. The IRCTC is giving certain reward points for purchase of railway tickets on SBI card.

Is it credit card... or charge card...?

What is the different between these two cards? These are different types of cards work in a similar manner. In the credit card, the credit limit would be fixed beforehand. In case if you consume the entire amount in a month, there will be no conditions to repay it in the same month. You can make payment as per your convenience. But in case of charge card, if you take credit you should repay it in the same month. You can’t carry forward the balance credit. As you repay the entire amount in the same month, there won’t be any kind of interest. However, in case of default, you should pay a penalty of five per cent. 

The credit limit in the charge card would be decided while you are spending. It depends on the customer’s loan history, financial capacity, hence it could be any amount. With the help of charge card you can increase your credit score tactically. At the same time, you can get rewards and offers on the lines of credit card. However, for the charge card, the annual fee would be heavy. As there is a condition that the amount spent on the charge card should be repaid in the same month, the customer may not be caught in debt trap.

Balance transfer of credit

For example you are using one company/bank’s credit card and obtained Rs 50,000 credit. The interest rate on that amount is 3 per cent. At the same time, another company offered a credit card at 2 per cent interest rate. In that case, you should take that card without any second thought and pay the first company’s credit by obtaining credit from the second card. In case your credit history is satisfactory, some bans offer loans without interest. They will also provide the facility of loan transfer as well. However, when you transfer your credit to another card, you may have to pay 2 per cent interest. Moreover, the transferred credit should not be more than 80 per cent of the new card’s credit limit.

Credit cards for lower income groups

The job category and the salary earned by a person are the basic criteria looked by the credit card companies. That is the reason why the companies are after the higher income group people. Then what about the lower income groups? There are some specially designed cards for them also. HSBC classic credit card could be obtained by the people who have Rs 1.44 lakh per annum. For the self- employed and other income groups who earn Rs 20,000 per month could obtain HSBC Gold Card.

The Axis Bank is offering insta cash credit card on Rs 20,000 fixed deposits and Gold Card for those who earn around Rs 15,000 per month. Likewise, the Bank of India is offering a card to those whose annual income is Rs 75,000, Canara Bank is offering Visa Classic and Master Standard cards for those who earn Rs 1 lakh per annum. In case of those who earn Rs 2 lakh per annum, the Canara Bank is offering Canara Bank Global Gold Card. Those who earn Rs 12,000 per month can apply for ICICI’s HPCL credit card. 

In case of the HDFC Bank’s gold and silver cards, the annual income should be around Rs 2 lakh per month if the customer is working in a firm and for those who are self- employed, the annual income should be Rs 1.50 lakh. Those who are employed and for the self- employed, the Kotak Bank is offering Trump and Fortune Gold cards if their annual income touches Rs 3 lakh. In case of Andhra Bank Visa Gold Card, the customer should have a minimum salary of Rs 20,000. Those who have Rs 1.50 lakh earnings per annum could obtain Bank of Baroda’s Visa Gold Card. To obtain Corporation Bank’s classic card, one should have a minimum of Rs 10,000 per month. To obtain Vijaya Bank’s Visa Classic card, a minimum of income Rs 5,000 per month is enough. However, for the Master Card of Vijaya Bank, the annual income should be not less than Rs 1.2 lakh.

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For students and homemakers

Whether you may be an unemployed / student or a homemaker and for those who have no known sources of income too, the banks are ready to provide credit cards if they want. However, the only condition for issuing the credit card is to have a fixed deposit. It may be between Rs 20,000 to Rs 50,000. In case of default in payment, the amount could be deducted from the fixed deposit amount. The minimum period of the fixed deposit should be between 3 months and one year. 

Likewise, the banks would provide add-on card also for these credit cards. In case any of the family members has a credit card already, an add-on card could be provided for the other family member. All the terms and conditions would be the same for the actual credit card and add-on card. Such cards would be very useful to the students. In case, none of the family members possess a credit card, students could obtain credit with the help of fixed deposit. 

Some banks are also providing credit cards on savings accounts as well. However, those credit cards issued to the students, the credit limit will be minimal. For them even the interest rates are also less when compared to regular credit cards. Of course, the due date will also be less than regular cards for those given to the students. Those who use such student credit cards, there will be a facility of rebate in fuel surcharge.

Worse credit history could be made great

Those who have a very bad credit history could deposit some amount and take a credit card and make use of it and make payments regularly and make the credit score run like a horse within a year or two. Based on it, they could secure housing and personal loans and get the eligibility for other kinds of loans.

What are needed to obtain a credit card...

Salary slip, income tax returns, three months statement of the bank in which the salary is being deposited should be submitted along with the credit card application. For those who are not salaried (self-employed), they should submit their income tax returns for the past three years, identity proof with photo, PAN card Xerox copy besides the address proof. The credit card company may demand the details of the trade. Especially, the credit score should be clean and good. In case, if you deposit some amount, many of these criteria may not be needed.

What would be seen before issuing a credit card...?

Especially the credit history should be good. The banks would first verify Credit Information Bureau (India) Limited (CIBIL)’s report. If the score is above 600, there will not be any problems to issue a credit card. In case the score is less, then the credit history is said to be bad and the banks may not issue cards to such persons. In case of no credit history is also a drawback. In case, if you don’t take any kind of loan till date, then there will be no credit history at all.

In case if a person has so many cards and used them totally and apply for a new card, the banks who issue credit cards will refuse to allot a credit card to such persons. They will not allow even for transfer of credit as well. The credit card companies would issue credit cards to any employee, who is working in a company which was listed in the stock market, without any hesitation. 

However, they will hesitate to issue a credit card to those employees who work in unlisted companies. It is a surprise that the card issuing companies would take into account the nature of job and the residential area too into consideration. They will also consider the income level and the age of the customer while issuing credit cards. Especially the credit limit will be fixed based on the income-level of the customer. The credit limit could be around 30 per cent of his annual income.


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