Credit Cards
A credit card, is a Card as the name suggests, which allows you to pay for purchases with the Credit Card issuers money.Card issuers are banks like Citibank, ICICI Bank, HDFC Bank, Standard Chartered Bank, RBL Bank, IndusInd Bank or specialized Credit Card companies like SBI Credit Card and American Express. When one of them issues you a Credit Card, they offer you a predefined credit line eg. Rs. 75000. You can use your Credit Card up to this line amount, till the next monthly repayment date, free of any interest cost. Credit Cards are widely accepted at stores, restaurants, hotels, hospitals etc. as a mode of payment, in lieu of cash. Most Credit Cards are accepted worldwide and provide convenience to the holder.
A credit card allows you to pay for purchases with the Credit Card issuers money. Card issuers are banks like Citibank, ICICI Bank, HDFC Bank, Standard Chartered Bank, RBL Bank, IndusInd Bank or specialized Credit Card companies like SBI Credit Card and American Express. When one of them issues you a Credit Card, they offer you a predefined credit line eg. Rs. 75,000. You can use your Credit Card up to this line amount, till the next monthly repayment date, free of any interest cost. Credit Cards are widely accepted at stores, restaurants, hotels, hospitals etc. as a mode of payment, in lieu of cash. Most Credit Cards are accepted worldwide and provide convenience to the holder.

Debit cards are issued by your bank and linked to your own bank account. You can use your debit card to make purchases, by swiping the card at the merchant or giving your card details online, in lieu of paying in cash. When you use your debit card, the amount that you spend is withdrawn from your bank account instantly, to pay the merchant. So you can only spend as much as your bank balance when you use your debit card.

Prepaid cards are a different category of cards, which allow you to make a advance deposit in to the prepaid card, to be used later for purchases. These are not linked to your bank account. These could be issued by a wider range of issuers including stores, banks etc. Prepaid card issuers generally charge a fees for the convenience that the card offers use. So if you deposit say Rs. 10000 in to a prepaid card, it is possible that you will be allowed to use say Rs. 9800 only and the balance will be taken by the issuer as a fee.
A Credit Card is a good way to build your credit history. Most banks offer Credit Cards to first time borrowers, since they can restrict the initial line amount and increase it over time basis your usage/repayment behavior. It allows them to get new customers, track your spending pattern, earn fees and interest, while taking small credit risk. Over time as your needs increase and you require money to say buy a car or a home, your credit history plays a significant part in your lenders decision process. A good credit history not only improves your chances of getting your loan application approved, but also helps reduce the interest rate offered by the bank on the loan.

Credit Cards also offer super convenience. You do not need to carry large sums of cash around, to make purchases. You can make small payments easily with your Credit Card, not bothering to carry loose change. Also it is much safer than carrying say Rs. 40000 with you on a trip to Mumbai, to pay for your hotel and other travel expenses.

Credit Card companies bring you discount offers from various stores, online merchants, restaurants etc. They are able to do this since they have large number of customers and can help promote their partner stores / websites etc. They also offer freebies like reward points, cash back, accident insurance, no service charges at say petrol pumps etc. depending on the features of the Credit Card you have picked.

And the most common benefit is that you use the Credit Card issuers money for your purchases, without having to pay any interest cost, till your next monthly payment date.

Mantras for effectively using your credit card

Here are some handy tips for maximizing the benefits of a credit card:
  • Please remember to pay your bills on time. If you are unable to clear the entire dues, then you must pay the minimum dues reflected on your card statement.
  • Avoid spending just because you don’t need to pay with cash from your wallet. Remember that you will need to repay your card dues very shortly!
  • Familiarize yourself with the benefits offered on your credit card. If discounts are available at several restaurants, then you should try and pick one of these when you want to eat out.
  • Ensure that you stay well within the credit limit of your card. That way you will not find yourself in an embarrassing situation while settling payment for a purchase.
  • Sign on the reverse of your credit card, as soon as the plastic is delivered to you.
  • Ideally have 2 credit cards. Pick them on the basis of your usage and features / benefits each of them offer.
  • Get your spouse an add-on card. This makes it easier to track your family spending and clearing bills.