Key Terms You Need to Know About Credit Cards

Credit cards have become an integral part of financial life in India, offering convenience and flexibility in managing expenses. However, the world of credit cards comes with its own vocabulary that can be confusing for many. Understanding these terms is crucial for using your credit card wisely and avoiding potential pitfalls. Let’s demystify some key credit card terms that every Indian cardholder should know.

1. Credit Limit

Your credit limit is the maximum amount you can spend on your credit card. In India, this typically ranges from ₹20,000 to several lakhs, depending on your income and creditworthiness. It’s important to keep your spending well below this limit to maintain a good credit utilization ratio.

2. Available Credit

This is the amount you can still spend on your card. It’s your credit limit minus your current balance and any pending transactions. For example, if your credit limit is ₹1,00,000 and you’ve spent ₹30,000, your available credit is ₹70,000.

3. Billing Cycle

This is the period between two consecutive bill generation dates, usually 30 days. Understanding your billing cycle helps you plan your purchases and payments effectively.

4. Statement Date

Also known as the billing date, this is when your monthly statement is generated. It’s important to know this date as it marks the end of your billing cycle.

5. Due Date

This is the date by which you must make at least the minimum payment to avoid late fees and interest charges. In India, most banks provide a grace period of 18-50 days from the statement date.

6. Minimum Amount Due

This is the least amount you need to pay by the due date to keep your account in good standing. In India, it’s typically 5% of your total outstanding balance. However, paying only the minimum amount can lead to high-interest charges on the remaining balance.

7. Credit Score

In India, this is typically your CIBIL score, ranging from 300 to 900. A score above 750 is considered excellent and can help you secure better credit card offers and lower interest rates.

8. Annual Percentage Rate (APR)

This is the annualized interest rate charged on your outstanding balance if you don’t pay the full amount. In India, credit card APRs can be quite high, often ranging from 24% to 49% per annum.

9. Cash Advance

This refers to withdrawing cash using your credit card, either from an ATM or over the counter at a bank. In India, cash advances usually incur high fees and interest rates, often around 2.5% to 3.5% per transaction.

10. Balance Transfer

This involves transferring the balance from one credit card to another, often to take advantage of lower interest rates. Many Indian banks offer balance transfer facilities with introductory low-interest periods.

11. Reward Points

Many Indian credit cards offer reward points on purchases. These can be redeemed for various benefits like cashback, air miles, or merchandise. The value of these points varies by card and bank.

12. Cashback

This is a type of reward where a percentage of your spending is credited back to your account. In India, cashback offers typically range from 0.25% to 5% of the transaction amount, depending on the card and category of spending.

13. EMI (Equated Monthly Installment)

Many Indian credit cards offer the option to convert large purchases into EMIs. This allows you to pay for expensive items over time, often at lower interest rates than the regular card APR.

14. Joining Fee and Annual Fee

The joining fee is a one-time charge when you get a new card, while the annual fee is charged yearly for card membership. Many Indian banks offer cards with these fees waived for the first year or based on spending thresholds.

15. Foreign Transaction Fee

This is charged when you purchase in a foreign currency. In India, it’s typically around 3-3.5% of the transaction amount.

16. Credit Card Statement

This monthly document details all your transactions, payments, fees, and the amount due. You can usually access this online or receive it via email or post.

17. Grace Period

This is the interest-free period between your statement date and due date. In India, this can be up to 50 days for some cards, allowing you to make purchases without incurring interest if you pay the full balance by the due date.

18. Over-limit Fee

This is charged if you exceed your credit limit. In India, it’s typically around 2.5% of the over-limit amount.

19. Credit Card PIN

In India, a PIN (Personal Identification Number) is required for ATM transactions and often for point-of-sale transactions as well, adding an extra layer of security.

20. GST on Credit Card Fees

In India, Goods and Services Tax (GST) at 18% is applicable on various credit card fees and charges.

Conclusion

Understanding these terms is crucial for managing your credit card effectively in India. It helps you make informed decisions, avoid unnecessary charges, and maximize the benefits of your card. Remember, a credit card can be a powerful financial tool when used responsibly. Stay informed, read your card agreement carefully, and don’t hesitate to ask your bank for clarification on any terms you don’t understand.