FAQ Category: Utility of Credit Cards

A credit card is a physical card that can be used to make purchases, pay bills or depending on the card, withdraw cash. The simplest way to think of a credit card is as a type of short term loan.

When you open a credit card account, your credit card company gives you a set credit limit. This is essentially an amount of money the credit card company allows you to use to make purchases or pay bills.

Your available credit is reduced as you charge things to the card. You then pay back what you spent from your credit limit to the credit card company.

Credit cards can be used to make purchases online or in stores and pay bills. When you use a credit card for either one, your card details are sent to the merchant’s bank. The bank then gets authorization from the credit card network to process the transaction. Your card issuer then has to verify your information and either approve or decline the transaction.

If the transaction is approved, the payment is made to the merchant and your card’s available credit is reduced by the transaction amount. At the end of your billing cycle, your card issuer will send you a statement showing all the transactions for that month, your previous balance and new balance, your minimum payment due and your due date.

The grace period is the period of time between the date of a purchase on your card and the due date listed on your statement. During this period if you pay your bill in full by the due date, no interest charges accrue. But if you carry a balance month to month, your card issuer can charge you interest. Your credit card’s annual percentage rate or APR reflects the cost of carrying a balance on an annualized basis. Your APR includes both your interest rate and other costs, such as an annual fee if your card has one.

The credit cards provide variety of benefits provided it is responsibly and smartly used in the manner below:

• Finance your needs, not wants.
• Know the MITC
• Set a budget.
• Redeem credit card points.
• Stay under 30% of the credit limit.
• Don’t use credit cards at ATMs.
• Store your credit card details securely.
• Use spending analyses tools.

• Help build a healthy Credit score – Responsible credit card usage helps establish and improve your credit history, enabling access to better financial opportunities in the future.
• EMI Facilities – Credit cards allow you to convert large purchases into manageable monthly installments, making it easier to afford expensive items.
• In build grace periods – Credit cards often offer grace periods, giving you time to repay your balance without incurring interest charges.
• Protection from unauthorised purchases– Credit cards come with fraud protection, ensuring you won’t be liable for unauthorized transactions.
• Track your spending – Credit card statements provide detailed records of your expenses, aiding in budgeting and financial planning.
• Reward Programmes – Many credit cards offer reward points, cashback, or discounts, providing benefits for regular card usage.
• Sign on bonuses – Some credit cards offer enticing sign-up bonuses, such as reward points or cashback, for new cardholders.
• Cards are universally accepted – Credit cards are widely accepted worldwide, allowing convenient and secure transactions in various locations.
• Use the right card for the right purchase – Different credit cards offer specific rewards or benefits for various spending categories, maximizing savings.
• Balance Transfer – Credit cards may allow you to transfer balances from higher-interest cards to lower-interest cards, helping reduce debt burdens.

• Monthly Scrutiny – Credit card statements require regular monitoring to avoid errors, fraudulent charges, or unauthorized transactions.
• Hidden costs – Some credit cards may have hidden fees, such as annual fees, late payment charges, or foreign transaction fees, which can add to your expenses.
• Easy to be overused – Credit cards can lead to overspending and accumulating debt if not used responsibly, tempting users with easy access to credit.
• Minimum due – Paying only the minimum amount due can lead to a debt cycle, as high-interest charges may keep accumulating on the remaining balance.

If you’re in the market for your first credit card or your next credit card, it’s important to do some comparison shopping. Some of the key things to look for when comparing credit cards include:

• Regular variable APR for purchases
• APR for balance transfers and cash advances
• Promotional APR terms and conditions
• Annual fees
• Rewards programs
• Introductory bonus offer terms

It’s also helpful to look at the card’s other benefits and features, if any. For example, if you’re interested in opening a travel credit card to earn miles or points toward flights and hotel stays you may also be interested in finding a card that comes with benefits such as airport lounge access or airline fee credits. If a card has an annual fee, it’s helpful to compare the value of rewards and benefits to the fee to decide if it’s worth it.

Before owning a credit card, here are the key things to know:

• Credit Card Terms: Understand the terms and conditions, including interest rates, fees, and penalties.
• Credit Score: Check your credit score and see if you meet the card’s eligibility requirements.
• Interest Rates: Know the interest rates and Annual Percentage Rate (APR) associated with the card.
• Credit Limit: Determine the maximum amount you can borrow with the card.
• Payment Responsibility: Understand the importance of making timely payments to avoid fees and maintain a good credit score.
• Rewards Programs: Explore any rewards or cashback programs offered and see if they align with your preferences.
• Debt Management: Be aware of the potential for debt if you overspend or carry a balance.
• Fees and Charges: Identify any annual fees, transaction fees, or foreign exchange fees associated with the card.
• Security Measures: Understand the security measures provided, such as fraud protection and liability policies.
• Payment Options: Know the payment options available and the due dates for making payments.

By considering these factors, you can make an informed decision about owning a credit card that suits your financial needs and helps you build a positive credit history

Credit card theft can occur through various methods including the below.

• Skimming: Thieves use a device called a skimmer to steal card details when it’s swiped, enabling them to duplicate the information.
• Dumpster Diving: Discarded bills or documents containing credit card details can be retrieved by anyone and used for scams.
• Phishing: Scammers send convincing emails, posing as reputable organizations, to trick you into sharing personal information on fake websites.
• Keystroke Capturing: Malware or software installed on your system records every keystroke, including credit card details, when you unknowingly download it.
• SIM Swap: Scammers pretend to be cardholders, requesting a duplicate SIM card and deactivating the original, allowing them to access OTPs and conduct online transactions.

The features of debit card and credit card might appear to be same, but they are infact very different. Knowing the differences and understanding how and when to reach each can be a gamechanger when you handle your finances.

• Access to funds
• Perks
• Spending limit
• Credit score
• Fraud protection
• Fund deductions
• Potential changes

If used correctly, credit cards can be a wonderful financial tool that can be a great addition to one’s wallet. However, it is important to remember that credit cards come with a great deal of responsibilities. Before applying for a credit card, ask yourself if you are ready for the responsibility and where you intend to use the card. If you can embrace the intelligent use of credit cards, they can serve you well for years to come.