What is credit card: Hello friends, how are you guys? I hope you guys are fine, today in this article I am going to tell you about credit cards. In this article you will know what is a credit card? How does a credit card work? What is the use of credit card? Everything about credit cards in detail. In this article, you will get complete information about credit cards in very easy language, so you are requested to read this article completely. So let’s start.
What is credit card?
What is credit card? Credit cards are small rectangular cards of metal or plastic issued by a financial services firm that allows cardholders to obtain funds to purchase products and services at merchants who accept credit cards to pay. Credit cards require that cardholders repay the amount borrowed, plus any interest that is applicable and any additional charges that are agreed upon or in full, by the date of billing or at a later time.
With a credit card you will receive the ability to limit a certain amount, based on your income and you can use it to shop online and for offline shopping. You can withdraw it if you need to. You can however withdraw funds from your credit card at the lowest percentage of between 5 and 10 percent of your credit card’s limit.
If you take money out of the credit card you are required to pay to the bank in addition to interest. If you purchase only with the credit card, you don’t need to pay fees to banks. This means that the money you paid is returned to the bank. There is a need to pay.
Difference Between Credit and Debit Card
Credit card is exactly similar to credit card looks exactly like (ATM card) but is different from debit cards. The debit card is linked directly to your bank account so you are able to use any amount is available in the account of your banking institution but that isn’t the situation for credit cards. Even if you don’t have funds within your banking account, you may make use of the funds according to the credit limit of your card.
A credit card functions as a kind of loan that is provided by the bank to its client, through which they are able to make purchases. Every month, the loan must be paid at the expense of the banks.
Type of Credit Cards
Credit cards are of different types. India has a variety of lenders offering credit card and various categories of credit cards available. However, a handful of these categories have proven as popular and well-known types for credit cards. Learn more about the most commonly used credit card categories in India.
1. Shopping Credit Card
Credit cards for shopping are one of the most popular categories of credit cards which have been accepted by a wide range of people across all age groups. Due to the growing popularity of these cards, banks of the top tier in India have started to offer a diverse variety of credit cards for shopping.
Credit cards for shopping are essential in the modern world. They offer many advantages to customers including cashback, discounts or offers, as well as incentives. They can be used in stores or online, they give you the ability to shop any time without worrying about immediate payment. Credit cards for shopping bring retailers closer to you, and shopping is now an easy alternative.
2.Travel Credit Card
Credit cards for travel can allow you to get discounts and rewards that you can use to pay for travel. In some instances they could even get the holder free night at their favourite hotels or complimentary tickets to airlines. From free upgrade to seats in first class exclusive access to lounges at airports to food vouchers, the cards provide many advantages and rewards that boost your spending habits.
There are a myriad of credit cards to pick from, as travel credit cards provide not just additional air miles and tie-ups to certain airlines as well as discounts on hotels, dining out and transactions that are easy within foreign countries.
3. Fuel Credit Cards
The price of fuel is increasing every day to new records. In the end, it can significantly impact the ability of consumers to purchase. Credit cards for fuel are an option to lessen the burden of the high cost of fuel. They are specialized credit cards that are offered by a variety of financial institutions that are able to be used to refill your tank at partner stations all over the nation. For every purchase of fuel with these credit cards customer receives monetary rewards.
Reduce your overall expenses for transportation by cutting your fuel costs throughout the year using the use of a fuel credit card or getting the fuel surcharge waived.
4. Entertainment Credit Card
Credit cards that provide discounts and offers on entertainment-related expenses are called Entertainment Credit Cards. You can buy movie tickets, amusement park tickets, etc. using this card.
With the entertainment credit card users can avail discounts on films or even free movie tickets each month. Banks also work in partnership with gaming arenas, amusement parks as well as other entertainment outlets to offer credit card holders incredible discounts. Cardholders only must pay for their purchase using their credit card in order to take advantage of these offers. Banks also greet their cardholders with gifts for welcome such as movie tickets and gift cards from the top brands.
5. Secured Credit Card
Secured credit card is a card which is backed by a payment which is used as collateral. A secured credit card is usually offered to people who do not have a credit history or have a limited credit history by still require a credit card.
Banks provide these secured credit cards to their customers to help them build their credit profiles. The credit card is issued only after a certain amount is paid to the bank and that amount usually acts as the credit limit of the card.
6. Reward Credit Card
Rewards credit cards provide the most important benefit of the reward points programs and the options for redemption. Rewards points can help you save money that you have earned and provide you with the most enjoyable experience using credit cards.
When you use these cards on popular categories , such as buying online or at a merchant store as well as holidays and travel diningout, etc. In return, you can get reward points on a large scale. Additionally, to redeem points earned, you have access to many different and appealing choices.
7. Co-Branded Credit Cards
These cards are co-branded with two parties. The primary party is typically an institution or bank while the other is a brand that fits the card’s use and benefits like gas stations, retailers, or online seller. Cardholders who have co-branded cards can gain benefits that are exclusive to the co-branded event of the card. Card brands that work with hotels, airlines or airlines can be an example of co-branded credit card brands that are also travel-related options.
8. Business Credit Cards
The cards are specifically designed to be used for business purposes. This is to ensure that personal and business expenditures are kept separate. However, even a corporate credit card needs that you have a solid credit score to be eligible. The reason is that the issuer believes that the cardholder is responsible for repayment of the bill.
9. Premium/Signature Credit Cards
Premium/Signature Credit Cards are credit cards with premium features, these cards are reserved for a select few. This gives you access to airport lounges, golf clubs as well as concierge services and insurance. It may also provide complimentary hotel and travel coupons. Some cards offer a personal relationship manager who will manage the card holder’s accounts. Some people do not get approval to use such cards.
10. Student Credit Card
Student credit cards are card for students attending college. Anyone over an age of can apply for a credit card, as it doesn’t have an income limit. The credit card come with lower interest rates and come with a the validity which is 5 years.
However, what’s most interesting is that credit cards for students don’t just ease your financial load, it also give the opportunity to earn money while you spend. It’s feasible, thanks to the plethora of advantages these cards provide. A student credit card may appear like a magic technique in your pocket. Since you’re invincible but not because of a lack of money at all!
Apart from these credit cards, there can be many types of credit cards, such as basic credit card, no annual fee credit card, low interest credit card, balance transfer credit card, cashback credit card, airmiles credit card, lifestyle credit card, prepaid card, credit card for women, Many more.
How Does a Credit Card Work
We’ve now covered the question ‘What is credit card?’, it’s time to explain how it works. Credit cards can be used to card to make offline and online purchases within your limit of credit. In both instances the details of your credit card are transferred to the bank that the merchant uses. The bank will then send an inquiry for verification at your lending institution. If the lender confirms your information and authorizes the payment, it is processed.
The funds will be deducted from your credit limit, and has to be paid back to the lending institution within a specified time frame. The grace period, or the period between purchase date and the payment date may be between 21 and 25 days, based on the lender. There are no interest fees that apply to the purchase when you pay the entire payment within the grace time.
Credit Card Advantages and Disadvantages
With its ease of use and a variety of payback options, credit cards are a vital element in our everyday lives. The deals, discounts, and discounts that credit cards offer can’t be beaten by any other financial product and are great rewards for the sophisticated user. But, credit cards can be a trap for debt when not properly used, or if you pay more than you are able to pay when the bill is due.
If you are new to the world of credit, here is a list of the advantages and disadvantages associated with credit cards.
Benefits of Credit Cards
Once you’ve viewed a few of the credit card benefits Let’s look at the advantages. Here are a few most important benefits that you are able to take advantage of.
Buy Now, Pay Later: Credit cards are a popular payment method that lets the purchase of what you want today and then pay for it later at an earlier date. Each credit card has an agreed-upon credit limit for purchases made with the card. If the purchase is made within the grace period of interest-free and you’re not required to pay any additional charges for the purchase.
Easy EMI Facility: You can convert the purchase amount to manageable monthly installments with credit card. Doing so helps you manage your immediate financial expenses better. So, if you buy an expensive new television or mobile instead of having to pay for it at the time of purchase, you may opt to pay for the purchase through a flexible repayment tenor.
Redeemable Rewards: You will earn reward points for any purchases you make with your card. You can use these reward points to buy lifestyle items, travel or spend on fuel.
Welcome Bonuses: If you apply for an account with a new credit card, you will receive certain welcome bonuses. The lender you select the welcome bonus may consist of additional reward points or gift vouchers for special occasions which can be used at partner shops.
Discounts and Cashback: Also, you can avail of cashback and discounts on your dining, lifestyle entertainment, travel, and other purchases at certain partner retailers. Cashback offers can be applied to both offline and online purchases.
Insurance Coverage: Certain higher-end credit card brands also have complete insurance coverages, such as personal accidents, air accidents, and accidental death coverage.
Easy Auto-Payments Facility: Keeping track of deadlines for bill payments is a nightmare. But, with the auto-payment feature of a credit card, you can set up your monthly payments and never forget a date. In addition, you can link your credit card with your mobile wallet or payment services online to benefit from the benefits of scanning and paying.
- Even if you don’t have cash in your account at the bank You can still pay for the purchase anywhere you want using a credit card.
- With the help of various kinds of credit cards, you can avail discounts on various products. For instance, booking with credit cards for travel and shopping with a credit card, or shopping with a credit
- With a credit card, you can control your daily expenditure.
- With the help of a credit card, you are able to purchase every expensive item in simple installments.
- If you are able to pay for the funds that you have used from your credit card in time, your credit score increases.
- In the event of an emergency you may also consider the loan of credit cards.
Disadvantages of Credit Cards
Just as there are many advantages of credit cards, there are also some disadvantages that you need to know.
Minimum due: The most significant flaw of credit cards is the amount of the minimum due which is shown on the top of a billing statement. There are a lot of customers who have credit cards who are tricked to believe that the minimum amount is the amount due amount they have to pay, however, in actuality it’s the lowest amount that the company would like you to pay in order to keep receiving credit cards.
In the end, customers believe that their bills are low, and spending more and accruing interest on the outstanding balance, can add up to an enormous and insurmountable amount over time.
Hidden costs: Credit cards seem simple and easy initially, but they come with many hidden charges that can increase the cost overall. Credit cards are subject to a range of fees and taxes like late payment charges as well as joining fees, processing fees, and renewal fees. In the event of a missed payment, it could result in a penalty. In addition, repeated late payments could result in a reduction of your credit limit. This could negatively impact the rating and the future prospects for credit.
High-Interest rate: If you fail to pay your balance by the date of due payment the balance is carried forward and interest added to it. The interest accrues over time when you make purchases following the interest-free duration. The interest rates charged by credit cards are extremely high, with an average rate of 3percent per month, that’s 36% annually.
- The bank is required to pay interest if it doesn’t pay the credit card on time.
- Excessive use of credit cards can increase your debt to banks. This can affect savings.
- Most credit cards charge an annual fee, which the credit card holder has to pay.
How to Apply for Credit Card
In response to the growing popularity of credit cards The banks have made it easy applying for credit cards. You can apply for a credit card both online via mobile phones and through an offline banks.
There are a few basic requirements or qualifications to be met for the issuance of a credit card. These are as follows:
- The applicant’s age must be over 18 years of age.
- You must have a regular source of income to pay the credit card bill.
- Credit score should not be low.
Credit Card FAQs
Q. What is credit card?
A. In simple terms, the credit card is an instrument of financial use that permits the purchase of items and services. With a credit card, you can make purchases of items and services and make payments for them later. This is extremely useful in situations where you require a purchase but have no cash.
Q. What is Minimum Due in Credit Card?
A. The minimum amount for credit cards payable is the sum the cardholder has to pay by or prior to the due date for payment. Typically this amount is five percent of the outstanding balance.
Q. What is a Secured Credit Card?
A. A secured credit card is a credit card for which a security deposit is required from you at the time of opening the account. This minimizes the risk for the credit card issuer. If you fail to pay the bill on time, the card issuer can take the money you deposited. This is the reason why secured credit cards are offered to people with bad credit or no credit at all. These cards are available to people with bad credit or no credit.