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Rameshjeee

All you wanted to know about credit cards

So you are at this fancy restaurant with your partner. The restaurant is expensive and the bill comes up to a hefty sum. Now, what would anyone normally do? Pay cash? Not likely. With the easy availability of credit today, you would end up using your credit card.

Credit card: What is it?
A credit card is part of a system of payments named after the small plastic card issued to users of the system. It is a card entitling its holder to buy goods and services based on the holders promise to pay for these goods and services. The issuer of the card grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant or as a cash advance to the user.

How does it work?
After you or the cashier swipes your credit card through a reader, the EDC software at the point-of-sale (POS) terminal of the establishment that you are using your credit card at dials a stored telephone number (using a modem) to call an acquirer. An acquirer is an organization that collects credit-authentication requests from merchants and provides the merchants with a payment guarantee. Put simply, the card is swiped at the establishment>the bank or financial institution is contacted>authenticity is established>payment is approved>receipt is received.

The Pros and Cons

Pros

• You don't have to carry a large amount of cash all the time.
• Purchasing power increases because of the higher credit limit being offered to customers.
• Almost all major establishments accept credit cards.
• You can buy things online.
• Credit cards also serve those who frequently travel internationally.

Cons

• Uncontrolled spending can result in a bad financial situation.
• Credit cards are prone to security issues when spending online.
• Credit cards impose high interest rates and other applicable fees.So if you do not make the payments as soon as possible, you might end up paying more than the price of the item or service you purchased.

Charges

• Interest rates: Most banks charge over 30% p.a or 2.79% to 3.9% per month on outstanding amounts. These figures can even go up to 45%.
• Late payment fee: Credit card companies normally charge Rs 350 per month on outstanding amount less than Rs 10,000. For outstanding balances between Rs 10,000 and Rs 20,000 the charges are Rs 500 and can go up to Rs 600, for higher amounts.
• Overdraft charges: There is a charge if a customer exceeds the credit limit. This varies from issuer to issuer.
• Overdue: For overdue accounts and payments that companies collect by sending an executive to the customer, there is a fees of Rs 50 to Rs 75. This charge is passed on to the customer.
• Cash advance: If the card holder withdraws from the ATM, there is a charge of 3% on the total money withdrawn or Rs 300, whichever is higher. For money drawn through a branch, credit card companies levy an additional fee of Rs 500.
• Joining and annual fees: A lot of credit card companies offer credit cards with no joining charges. However, they later charge the annual charges.
• Duplicate statement charges: Many banks charge anything between Rs 25 and Rs 200 for duplicate statements.

Dos and Don't s

Dos

1. Make wise decisions about purchasing items you need versus those you simply want. It is important to distinguish between the two.
   
2. Pay on time, within the due date. Consecutive missed payments will make you defaulter and result in a poor credit score.
   
3. Stay within 30% of your credit limit.
   
4. Read your credit card statement carefully.

Don'ts

1. Use your credit card to make everyday purchases like food, clothing, and petrol. Using your credit card as a substitute for cash will land you in unnecessary debt.
   
2. Get into the habit of making minimum-only payments. Making only the minimum payment each month increases the amount of time it will take to pay off your debt.
   
3. Use your credit card to buy things you can't afford.
   
4. Withdraw cash from an ATM using your credit card. Not only will you be charged a withdrawal fee, but the interest will levied from the moment the cash is withdrawn.

Security
Identity thefts and credit card fraud is something that can be a very bad experience. Protecting your credit card information is very critical. Here are some ways you can protect yourself from credit card fraud. Sign your credit cards as soon as you receive them.

• Shred Credit Card Receipts and Statements.
• Avoid online scams.
• Don't make credit card payments on sites that are not secure.
• Do not give out credit card information to unauthorised persons.
• Do not provide your personal PIN to anyone including bank executives.
• Never respond to emails that request you provide your credit card information via emails.
• Check your credit card statement, online account to keep track of all your transactions. If you view anything suspicious or chance upon a transaction, which you did not make, report it immediately to the bank authorities and get the needed precautions suggested by them.

A prudent credit card user can easily reap its benefits with benefits such as points accumulated on shopping with the credit card and other loyalty programmes.

Credit cards can quickly turn from being a blessing during emergencies to a curse when its uncontrolled use hits your wallet. Always remember to ask yourself: Do I need this thing that I am buying? Can I make cash payment instead? Keep yourself debt free.

Other Related threads:
How Credit card transaction works?
Credit Card Tips: Use your CC wisely.

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panchabhut

Very Well researched. However one aspect is left out.

Reward Points
Almost all cards prvide the facility of Bonus/Reward points. However, the terms of accrual differs from Card to Card. Reward points are not awarded for Cash Withdrawals and Instalment Transactions. Reward points may vary form 1 point/Rs.200 to 10 points/Rs.100 depending on the Card type. Further, for the same card, reward points may vary depending on the transaction type.
The validity of Rward points can also differ from 2 years to lifetime.
Different Card issuers offer different modes of redemption of Reward points. In most cases, the redemption is by way of exchange with Annual Fees or exchanging with specific products offered. However, some card issuers also allow redemption for Cash Credit.

newprouser

I have some questions....

1. whats the difference bet. credit and debit card.

2. If one loses a credit card , why worry when if others don't know the password...

panchabhut

^^^
A credit card, as the name suggests, is an instrument where a person is assigned a credit limit upto which he/she can draw credit (loan) from the card issuer. A credit card user first utilises credit and then pays back to the card issuer. In case he fails to return the money in full within the agreed interest-free period, as per agreement with the card issuer, he is also liable to pay interest to the card issuer along with the payment of principal.
On the other hand, a debit card is merely a disbursal instrument. The Card Holder deposits money in advance with the card issuer (generally in the form of a linked Saving A/c) and can utilise through the Card only that much amount which is already deposited. There is no loan/credit invloved. The amount of transaction instantly gets deducted from the deposits maintained. So there is also no question of subsequent repayment or interest charges.

There are two types of Cards (both Debit & Credit) depending on the usage procedure. The most commonly used format (All Visa cards/Master Cards/Amex Cards) does not require the use of any online password (PIN) at the Point of Sale (POS) transactions and only Swip+Signature is adequate. For such cards the PIN is restricted only for ATM transactions. However, the less commonly used type (Maestro and few others) require the use of online password (PIN) at the point of sale.
As most cards authenticate transactions only through Swipe+Sign, losing a card becomes a very very dangerous situation.

newprouser

thanks for the reply panchabhut

Jaganathsamal

You can easily control ur spending by reducing the credit limit of your card (according 2 ur monthly budget)

Now many banks provide online payment security (Verfied by VISA , Master Card secure code). Also showing your card to any one is dangerous (any 1 can memorise the card no, exp date , cvv no and can make transactions from unsecure payment gateways )

panchabhut

^^^
Visa Verified/Master Card Secure Code is applicable only for Internet transactions. For POS transactions, its still Swipe+Sign