Credit card Meaning, definition and types

                  

 

                    Hi, all do you know about the Credit card Meaning, definition and types. how it works and its importance in human life, I explained all about the credit card in this article, be with me 5 minutes to know all the things lets start reading.....

 Meaning of credit card:

A credit card is a card issued by the financial company which enables the cardholder to borrow the funds. The funds may be used as payment for goods and services. Issuance of credit cards has the condition that the cardholder will payback the original, borrowed amount plus any additional charges. And the credit company provider may also grant a line of credit to the cardholder which allows the holder to borrow money in the form of cash advance.

DIFFERENT TYPES OF CREDIT CARDS IN INDIA:

Credit cards are small plastic sized cards that make life simple. These cards allow you to purchase goods and services on credit, the money for which you can return at the end of every month.

Different categories of credit cards :

• Balance transfer credit cards
• Business credit cards
• Cashback cards
• Classic credit cards
• Co-branded credit cards
• Contactless credit cards
• Credit cards for women
• Entertainment cards
• Gold credit cards
• Lifestyle cards
• Platinum credit cards
• Premium/signature credit cards
• Silver credit cards
• Titanium credit cards
• Travel credit cards
• Auto/fuel credit cards

ADVANTAGES OF CREDIT CARDS:

A credit card is a convenient financial product that can be used for everyday purchases such as groceries, other goods, and services. It can also be a great resource for purchasing big-ticket items such as TV’s, travel packages and jewellery because the funds for these items are not always immediately disposal.

Beyond convenience other advantages of credit cards including providing cardholders with the opportunity to build credit, earn rewards and cashback and protect against credit card fraud.

CONVENIENCE:

Why carry wads of cash around when you can pay with a simple swipe of your card? A credit card is the simplest ways to pay for anything ie; no more counting out change or writing cheques, just present the plastic. you can even link your card to digital wallet, which allows you to scan and pay without having to carry your card in your wallet.

REWARDS:

Every time you pay using an HDFC Bank credit card, you earn rewards. You can redeem these awards for exciting gifts and vouchers such as free shopping trips or even free flight tickets.

RECHARGES AND TICKETS:

One of the biggest credit cards benefit over cash is the ability to pay for a wide range of online services. For example, you can buy flight tickets or recharge your mobile phone with cash or delivery. You can easily pay for them by using a credit card.

CASHBACK AND DISCOUNTS:

From fuel surcharge waivers to great online shopping deals, your HDFC bank credit card opens doors to a host of cashback offers and reward points, especially with selected offline and online merchants.

TRAVEL IN STYLE:

HDFC credit card makes your travel more pleasant experience with free access to exclusive airport lounges, priority check-in boarding, extra luggage allowance etc.,

EXPENSE TRACKER:

Credit card statements are a great way to track your expenses every month since it provides you with an itemised account of your expenditure.

RECURRING PAYMENTS:

While credit cards are great for one-time payments, you can also set it up to automatically make recurring payments such as your phone, electricity or gas bills. No more will there be a chance of forgetting to pay bills on time and facing penalties or disconnection.

INTEREST-FREE CREDIT:

A credit card comes with a grace period between purchase and payment( could be up to 50 days) during which the bank does not charge any interest. This is the perfect example of buy now and pays later.

DISADVANTAGES OF CREDIT CARDS:

• Interest and fees:

Using credit is essentially borrowing and you’re not borrowing for free. Mismanaging a credit card can lead not only to a high balance but also debt in the form of interest and fees.

• Overspending:

Credit cards can make life easier, but they can also make overspending as easier well. With a credit card, you are spending money you don’t necessarily have yet. If you are not alert/careful this may lead to unexpected debt.

• Credit card fraud:

Credit cards can be stolen, their numbers can be copied and they can be used to steal your money or identity.

1. If you lose your credit card, report it to your credit card company immediately.
2. Don’t loan your credit card to anyone and only give out your credit card information to believed companies.
3. Check your statement closely at the end of each month to make sure all charges are yours.

• Mounting debt:

If you carry a balance on your credit card from month to month, it can be very easy for charges and interest to rack up.

IMPORTANT CREDIT CARD FEATURES:

Credit card differ in terms they offer but most of the credit cards have the same basic features. Once you understand these basic credit card features then you will have an easier time choosing and using a credit card wisely. These are important features of a credit card:

1. Credit limit
2. Alternative to cash
3. Record keeping of all transactions
4. Regular charges
5. Grace period
6. Higher fees on cash withdrawals
7. Additional charges for delay in payment
8. Service tax
9. Gifts and other offers

1.CREDIT LIMIT:

The credit cardholder enjoys the facility of a credit limit set on his card. This limit of credit is determined by the credit card issuing entity only after analyzing the creditworthiness of the cardholder.

2.ALTERNATIVE TO CASH:

The credit card is the best alternative to cash. It removes the worry of carrying various denominations to pay at the trade counters. It is very easy and way fast to use a credit card rather than waiting for the completion of cash transactions.

3.RECORD KEEPING OF ALL TRANSACTIONS:

Credit card issuing entities like banks or NBFC’s can keep a complete record of all transactions made by their credit card holders. Such a record helps these entities to raise appropriate billing amounts payable by their cardholders, either on a monthly or some periodic basis.

4.REGULAR CHARGES:

Regular charges are basic routine charges charged by the credit card issuing entity on the usage of the credit card by its cardholder. These charges are nominal in nature.

These regular charges are classified into two types.

• Annual charges
• Additional charges

Annual charges are collected on per annum

Additional charges are collected for supplementary services provided by the credit card issuing entity. Such services include adding on the card, issue of a new credit card.

5.GRACE PERIOD:

The grace period refers to a minimum number of additional days within which a credit card holder has to pay his credit card bill without any incurring interest or finance charges.

6.HIGHER FEES ON CASH WITHDRAWL:

Credit card issuer makes charges on cash withdrawals made through credit card at the ATM outlets and other desks. Generally, cash withdrawal fees are quite higher than fees charged by the bank or NBFC for the other regular credit transactions. On cash is withdrawn done through a credit card, interest is charged from the same day. That is interest is charged since the day on which cash is withdrawn. Usually, no grace period is provided for such transactions.

7.ADDITIONAL CHARGES FOR DELAY IN PAYMENT:

The credit card payment is supposed to be made within due date as mentioned on the bill of a credit card. If payment is not paid on time, then a credit-card issuer charges some additional costs, which are resulted due to delay in payment. These charges are charged to compensate (recover) the interest cost, administration cost and any other related costs bared by the credit card issuing entity.

8.SERVICE TAX:

Service tax is included in the total amount charged to the credit cardholder. This mandatory service tax imposed by the government also increases the final end cost bared by a credit cardholder. Many credit card providers (issuing entities) have policies of reversing the service tax charged on the purchase of gas, fuel and other similar goods.

9.GIFTS AND OTHER OFFERS:

At a later stage (i.e. after crossing pre-determined number of bonus points) accumulated bonus points are redeemed either by converting them into gifts, cash back offers, or any other similar compelling offers. To collect many bonus points, the credit card holder has to carry out a considerable number of transactions through his credit card.

HOW DOES A CREDIT CARD WORKS:

You can think of a credit card as a short term loan from a credit card issuer. Unlike a debit card, which takes money from your checking account, a credit card uses the issuer’s money and then bills you later.

Here are some terms which will make you understand how credit card really works:

Balance:

How much you have spent on your card and haven't paid back . if you made $300 in purchases and haven’t paid it off, your credit card balance will be $300.

Credit limit:

The amount of money you can spend on your card at one time or the size of your ongoing loan, it was determined by the credit card issuer. The better your credit and higher your income, the higher your credit limit may be.

Billing cycle:

A set period during which you make purchases. After the period is over you will receive the bill and will have a month to pay about it.

Statement due date:

Date on your statement(credit card bill) by which you must pay at least the minimum payment to keep your account in good standing.

Available credit :

How much you can spend before you hit your credit limit. If your credit limit is $1,000, and you have a balance of $300, your available credit is $700. If you make a $200 payment, it’ll go back up to $900.

Minimum payment :

The amount of your credit card bill that you’re required to pay each month, which is usually a small percentage of your total balance. If you don’t pay this amount by the due date, the issuer can charge you a late fee. If the payment is late enough, it may report a late payment to the credit bureau -> a mistake that can stay on your credit reports for seven years. Though you should always make at least the minimum payment, we recommend paying your statement balance in full to avoid interest charges.

APR: (Annual Percentage Rate)

This stands for Annual Percentage Rate. If you don’t pay your statement balance in full each month, this is the interest rate you’ll pay on that remaining debt after the statement’s due date.

IMPORTANCE:

Many people ask why it is important to have a credit card. The benefits of credit card are many and no need to carry cash in your pocket everywhere you go is not the least of reasons. Sometimes when you want to buy something that is way out of your budget at the moment you can opt to carry the transaction through with your credit card and make the payments in instalments. No matter what the arguments against why it is important to have a credit card, credit cards are here to stay. Well, it has some benefits as mentioned below.

Conclusion :

finally, if we use credit card carefully and properly, we get a lot of benefits and savings, beware of charges and fees, you need to get credit card read terms and instruction, the annual charge of it and proceed...