A credit card is basically a service provided by banks to customers who may or may not be having accounts with them. As the name suggests, they are meant to give credit to the user. With a credit card, users can shop for commodities, consumer goods, fuel, automobiles, and practically everything under the sun, at stores where credit cards are accepted, without paying any interest. One can also avail cash on credit for an interest rate from his credit card via the bank’s ATM. The affiliations for credit cards are with two international bodies, VISA and Master Card, which are basically economic joint ventures of more than 20,000 financial institutions each, with the former having a better acceptability in our country. Credit cards trace their history way back to 1914, and have become a necessity for millions across the world.
The most essential term one should be familiar with is a billing cycle. This refers to the time span when you can purchase goods on credit, and pay later. As a standard, the billing cycle of credit cards in India is of 45 days. This means that if my billing cycle starts at 1st March, I can purchase a T-Shirt on that date and pay for it 45 days later, i.e., 14th April. However, the purchase period, i.e., the period in which you can actually purchase is of 30 days. Hence, I would be billed for my purchases uptil 30th March and start off on a fresh purchase period starting the next day, for which I would be billed in the next cycle.
Another term to be familiar with is the grace period. Usually, banks offer a grace period after you bill is due, before charging the interest, which is actually an advantage in case of emergencies. One should always go for the card fofeing the longest grace period.
The credit limit signifies the amount of credit you can avail in one billing cycle. Banks generally have different categories of credit cards to indicate the same. The ranking goes like this ; Silver (standard, lowest credit), Gold (higher credit), Platinum(highest credit). Banks usually assign these categories based on one's paying capabilities according to their parameters.
There are often many additional charges such as membership fees, annual fees, renewal fees, etc. One should always check for these while making a choice between different options, since these charges, though trivial at first, sum up to a huge amount over the due course of time.
The interest rate (APR) that would be charged by banks is also very important. Generally, companies charge between 2-3% per month. One should always go for the card having the minimum APR.
Advantages
* First of all, they rule out the necessity of carrying extra cash, as they are accepted almost everywhere now, which in turn results in instant cash or credit in case of an urgent requirement.
* Credit cards give a grace period for payment, which means that even if one does not have cash even in his bank account, he can make purchases and pay for them later.
* Credit cards are handy, and can be carried anywhere with ease. While this might not be a significant advantage in words, it is extremely beneficial in practical usage.
Disadvantages
* Credit cards frequently lead to spontaneous buying decisions, which are often unaffordable. Since the user rarely keeps a check on how much has been spent prior to every transaction, credit bills are often more than expected.
* Credit cards, if used to avail cash, come at an enormous interest rate of 35-40%.
* There are security issues also; Credit cards, if stolen, could be used to do fraudulent purchases, and billed to the owners’ account, if proper action is not take on time.
A few points to be taken care of while handling credit cards
* Never reveal your credit card number to anybody. While shopping online, ensure that the source is credible and your account details would not be leaked.
* Sign your credit card as soon as it arrives. This would minimise its use to some extent in case of theft.
* Verify the purchases with your credit card when the bill arrives. Always keep a record of all your transactions. The most effective way would be to store your copy of the transaction slip.
* If the credit card is damaged or has expired, be sure to dispose it properly, after cutting it in two or more pieces with a pair of scissors.
* If your credit card is lost or stolen, inform the police as well as the credit card company.
The most essential term one should be familiar with is a billing cycle. This refers to the time span when you can purchase goods on credit, and pay later. As a standard, the billing cycle of credit cards in India is of 45 days. This means that if my billing cycle starts at 1st March, I can purchase a T-Shirt on that date and pay for it 45 days later, i.e., 14th April. However, the purchase period, i.e., the period in which you can actually purchase is of 30 days. Hence, I would be billed for my purchases uptil 30th March and start off on a fresh purchase period starting the next day, for which I would be billed in the next cycle.
Another term to be familiar with is the grace period. Usually, banks offer a grace period after you bill is due, before charging the interest, which is actually an advantage in case of emergencies. One should always go for the card fofeing the longest grace period.
The credit limit signifies the amount of credit you can avail in one billing cycle. Banks generally have different categories of credit cards to indicate the same. The ranking goes like this ; Silver (standard, lowest credit), Gold (higher credit), Platinum(highest credit). Banks usually assign these categories based on one's paying capabilities according to their parameters.
There are often many additional charges such as membership fees, annual fees, renewal fees, etc. One should always check for these while making a choice between different options, since these charges, though trivial at first, sum up to a huge amount over the due course of time.
The interest rate (APR) that would be charged by banks is also very important. Generally, companies charge between 2-3% per month. One should always go for the card having the minimum APR.
Advantages
* First of all, they rule out the necessity of carrying extra cash, as they are accepted almost everywhere now, which in turn results in instant cash or credit in case of an urgent requirement.
* Credit cards give a grace period for payment, which means that even if one does not have cash even in his bank account, he can make purchases and pay for them later.
* Credit cards are handy, and can be carried anywhere with ease. While this might not be a significant advantage in words, it is extremely beneficial in practical usage.
Disadvantages
* Credit cards frequently lead to spontaneous buying decisions, which are often unaffordable. Since the user rarely keeps a check on how much has been spent prior to every transaction, credit bills are often more than expected.
* Credit cards, if used to avail cash, come at an enormous interest rate of 35-40%.
* There are security issues also; Credit cards, if stolen, could be used to do fraudulent purchases, and billed to the owners’ account, if proper action is not take on time.
A few points to be taken care of while handling credit cards
* Never reveal your credit card number to anybody. While shopping online, ensure that the source is credible and your account details would not be leaked.
* Sign your credit card as soon as it arrives. This would minimise its use to some extent in case of theft.
* Verify the purchases with your credit card when the bill arrives. Always keep a record of all your transactions. The most effective way would be to store your copy of the transaction slip.
* If the credit card is damaged or has expired, be sure to dispose it properly, after cutting it in two or more pieces with a pair of scissors.
* If your credit card is lost or stolen, inform the police as well as the credit card company.
No comments:
Post a Comment