What is a Credit Card?
A credit card is a financial instrument that has a pre-loaded balance that the cardholder can use to make transactions and pay for them later. The card issuer will let you pay off the balance fully, interest-free, for up to 50 days from the date of payment. To avoid any fines, the cardholder can pay the minimum amount due (which can be anywhere between 5% to 10% on the total amount owed). The balance, however, will be carried forward to the next month, and interest set by the credit card company will be levied.
Different Types of Credit Cards in India
- Shopping Credit Cards:
Shopping credit cards are curated to reward cardholders for their shopping expenses. They offer ample rewards in the form of points or cashback, which can be redeemed for merchandise, travel, or other rewards.
- Lifestyle Credit Cards:
Lifestyle credit cards fulfill your lifestyle wants and suit your various needs. Get reward points for every swipe you make. Avail for shopping discounts and cashback on retail spends.
- Fuel Credit Cards:
A Fuel Credit card is being offered by banks to customers in a bid to provide them with maximum benefits while purchasing fuel. Having this card enables those who constantly buy fuel for various purposes to lower their expenditure on fuel. Apart from that, it enables users of Fuel Credit cards to use it for other benefits with regard to lifestyle.
- Rewards Credit Cards:
Rewards credit cards offer you some type of "reward"—typically cash back, points, or travel miles—for every dollar you spend, sometimes up to certain limits. Depending on the card, you can then use your rewards in a variety of ways.
- Travel Credit Cards:
Travel credit cards offer exciting offers and deals related to travel. Most features and benefits offered by travel credit cards provide you savings on travel. From air ticket bookings to reward points accumulation, everything comes with a perk when done through a travel credit card.
Features & Benefits of Credit Cards
The credit card segment continues to grow universally as innovative contenders enter the space with fresh and advanced features. Get a look at the basic features.
Basic Features of Credit Cards
- Credit Limit:
Credit limit refers to the maximum amount you can use through your credit card at a given point of time. You are liable to be charged a fee on exceeding the given credit limit. Credit limits may change from month to month based on purchase and payment habits.
- Balance:
The balance on your credit card represents the total amount you owe. This includes purchases, finance charges, and fees. You may check your balance online, or by calling customer service.
- APR (Annual Percentage Rate):
APR refers to the term Annual Percentage Rate, an interest rate applicable to the balance you carry forward past the grace period. This interest can accumulate if you don't pay your balance in full.
- Grace Period:
Grace Period refers to the period of time you are allowed to repay your balance in full before being charged a fee. Typically, balance transfers and cash advances do not have grace periods, and interest is charged immediately.
- Credit Card Fees:
The most common fees include annual fees, finance charges, late fees, and over-the-limit fees. You may avoid certain fees based on how you use your card; for example by making credit card repayments on time.
Credit Card Eligibility
Credit card eligibility refers to the criteria that an individual must meet in order to qualify for a credit card issued by a financial institution. These criteria can vary between different credit card issuers, but they generally include factors such as:
- Age:
Most credit card issuers require applicants to be a certain age, typically 18 or older. Some may have a higher age requirement.
- Income:
Credit card issuers often have a minimum income requirement to ensure that applicants have the means to repay the credit card debt.
- Credit Score:
A good credit score is important for credit card eligibility. A higher credit score indicates a history of responsible credit behavior and makes you more likely to be approved for a credit card with favorable terms.
- Residential Status:
Depending on the issuer, you might need to provide proof of your current address or residency.
It's important to note that meeting these eligibility criteria does not guarantee approval for a credit card. The final decision rests with the credit card issuer based on their assessment of your application and creditworthiness. Additionally, different credit cards may have different eligibility criteria and features, so it's a good idea to carefully review the terms and conditions of the credit card you're interested in before applying.
FAQs:
A credit score is a 3-digit number (between 300 to 900) calculated by the credit bureau using the credit history of the individual. Banks and NBFCs (Non-Banking Financial Companies) have to share the credit history of their customers with all four credit bureaus. The credit history of an individual consists of credit amounts, lender names, loan and credit card limits, loan EMI and credit card bill payment records, any default on a credit card account, personal details, etc.
A credit report contains details of an individual's credit history, including loans, credit cards, payment history, and any defaults. Credit scores from different credit bureaus can vary, as each has its proprietary mechanism for calculating the score. There are four RBI-authorized Credit Information Companies (CICs) in India—CRIF Highmark, Experian, Equifax, and TransUnion (CIBIL). Each of these companies calculates credit scores differently, so the same individual's score could differ across bureaus and even on different dates from the same bureau.
Improving your credit score involves maintaining a good payment history, keeping credit card balances low, avoiding opening too many new accounts, and managing your credit responsibly. You can build your credit score in the following 4 steps:
- Use only 50% of your credit card limit per month.
- Pay all your loan-related dues on time.
- Use credit cards regularly based on your requirement.
- Make timely payments of your credit card bills or EMIs.
A credit score is calculated based on several factors, including your repayment history, credit utilization, the duration of your credit history, and the types of credit used. These factors play an important role in your overall creditworthiness. Interest is typically calculated based on the average daily balance of your credit card account and the annual percentage rate (APR). It's important to understand how interest is calculated to manage your balances effectively.
Key factors for managing a good credit score include:
- Repayments of credit card bills and loan EMIs on time.
- Utilization of credit card limits.
- Duration of credit cards and loan amounts.
- Total number of credit cards and loan amounts.
- Balance between secured and unsecured loans.
- Settlement status of credit cards or loan amounts.
A credit score is a three-digit number that represents your entire credit history, including all kinds of loans and credit cards. It is a summary of your creditworthiness. A credit report (CIR), on the other hand, is a detailed document that contains all the information about your loans, credit cards, payment history, and any defaults. While the credit score is a quick indicator of your creditworthiness, the credit report provides a complete record of your credit history.
Below are the common factors that can affect your credit score:
- Payments History: Your payment history speaks volumes about how you manage repayments. Late, delayed, or missed payments on credit cards or loans can negatively affect your credit score.
- Credit Utilization Ratio: This ratio measures the amount of credit you're using compared to your credit limits. Using more than 40% of your credit limit can indicate financial stress and negatively impact your credit score.
- Credit Mix: Having a balanced mix of secured and unsecured loans can positively impact your credit score. Lenders typically like to see variety in your credit history.
- Length of Credit History: The age of your credit accounts is factored into your score. A longer credit history typically indicates better credit management and positively impacts your credit score.
- Credit Inquiries: Multiple hard inquiries (when lenders review your credit report) can hurt your credit score. Too many credit accounts or inquiries within a short period may signal financial risk.
Your credit score and credit report are updated regularly, typically whenever new information is reported to the credit bureaus by your creditors. While this can vary depending on the creditor, they usually report to the credit bureaus every month.
In general, your credit report will be updated as soon as new information is reported, which could happen daily or weekly. However, not all creditors report to all four major credit bureaus (CRIF-Highmark, Equifax, Experian, and TransUnion-CIBIL), so your credit report may not be the same across all bureaus.
Your credit score, however, is calculated based on the information in your credit report at a specific point in time. It will typically change only when a new credit report is pulled, such as when you apply for a new loan or credit card.