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Credit Cards Unveiled: Exploring the Basics

How to choose Credit Card


Credit card issuers provide a plethora of options tailored to various spending habits and lifestyle preferences, making the selection process daunting, especially for first-time users.


To simplify this decision-making, here's a comprehensive beginner's guide to credit cards.



Understanding Credit Cards

Similar to debit cards, credit cards allow transactions, but the fundamental difference lies in the source of funds. Debit cards draw directly from your account, while credit cards involve borrowing from the issuer, up to a predetermined limit. This limit, established at approval, dictates your spending capacity. As you utilize the card, your available limit decreases, restoring upon repayment.


Here's a breakdown:

- Card limit: ₹1 lac

- Transaction: ₹25,000

- Available limit: ₹75,000

- Full bill payment restores limit to ₹1 lac

- Partial payment increases limit accordingly, leaving outstanding balance


Notably, unlike traditional loans, credit card usage during the interest-free period doesn't incur immediate interest. This grace period extends until the statement's due date. However, carrying over balances triggers interest charges as per issuer policies, nullifying the interest-free window until full repayment.


Credit Card Features

Key attributes include:

- Reward accumulation with redemption options

- Complimentary memberships and subscriptions

- ATM cash withdrawals within limits

- Big-ticket purchase conversion to EMIs

- Contactless payment capabilities

- Partner store discounts

- Credit score enhancement through responsible usage

- Additional charges like late fees or annual fees may apply


Pros and Cons

Advantages:

- Instant credit accessibility

- Convenience and security over cash

- Reward schemes and discounts

- Additional perks such as airport lounge access

- Interest-free borrowing during grace period

- Credit history improvement


Disadvantages:

- Higher interest rates compared to other credit options

- Non-payment impacts creditworthiness

- Potential additional costs like late fees


Credit Card Eligibility

To qualify, applicants must meet specific criteria and furnish requisite documents, including:

- Age over 18

- Indian citizenship

- Employment status (self-employed or salaried)

- Minimum income threshold

- Satisfactory credit score


Documentation typically includes proof of address, identity, and income.


Smart Credit Card Usage Tips

Maximize benefits and financial management with these strategies:

- Timely full bill payments

- Utilize rewards before expiration

- Maintain utilization under 30%

- Vigilant statement reviews and error reporting

- Limited cash withdrawals

- Transaction limit setting

- Protection of sensitive information


Choosing a suitable card involves aligning features with personal preferences and spending habits.

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