Credit Cards : Overview
Credit card is a very convenient option to make payments for goods and services that you may require on a day to day basis. Most shop keepers or service providers will not charge anything extra just because paid by credit card and not in cash. What's more the credit card company will give you a free credit period after which you have to pay off the full amount.
Free credit period is not available on cash withdrawals and interest on such cash withdrawals start from the day of withdrawal till payment date.
Off course this financial magic is explained by the fact that most shoppers shop for higher amounts when they pay by credit card than if they were paying in cash.
The magic works for you only if you make full payment of the entire 100% amount due on the credit card on the due dates. Almost all credit cards allow you to pay 5-10% of the amount due as minimum payment and make the balance payment later. This is called rollover facility. But this rollover facility comes at a steep interest cost that can be as high as 55% p.a. Also if you choose to use the rollover facility the free credit period granted to you is withdrawn and you will need to pay interest from the day on which each payment was incurred.
What is a Credit Card?
Some factors you can keep in mind while taking a card
- Joining fees: It had become history a few years back but has made a comeback since 2009. Many cards are still available without any joining fee however so compare this before you buy.
- Annual Fees: This is the annual charge on the credit card. When you get a free credit card offer in most case it means the Joining fees and the first year's annual fee is waived and you will ned to pay the annual fees from the second year onwards. Understand this offer before accepting it to avoid any issues later.
- Reward points encashable at your favourite store or service provider: If you are a frequent user of an airline or a store chain then look for a co-branded card from them since that will not only give you better reward points when you buy from that particular service provider/store chain but also give you reward points on your other spends
- Interest Rate on rollovers/cash withdrawals: If you need to look at this you are taking the credit card for the right reasons. Credit cards are not a good option for taking credit except for very short durations of time.
- Eligibility for the card: if you are planning to apply for a credit card for the first time then which card you will be eligible for is perhaps more important than the specific features of the credit card.
So if you are basing your decision on any
such promise make sure you get it in record in some form.
Do not sign blank application forms or documents and keep a copy of all documents submitted to the credit card issuer for your future reference.
Get your credit report Apply online on CIBIL website and follow the instruction given there to get a copy of your own and your guarantors credit report. Check your credit report thoroughly to spot errors and follow the advise given here (cross link) to get any errors corrected. Remember any errors in your credit report can reduce your chances of getting a credit card.