How to Use Credit Card in India? 5 Things to Understand before Applying

Updated on: 22 Apr 2022 // 5 min read // Credit Cards
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Credit cards are the aptest form of short-term unsecured loans with a 50-day interest-free period being the brightest part as a consumer is not required to pay any charge over the amount utilised during a statement cycle if the bills are paid on or before the due date in full.  
Credit cards are touted as the best, as well as the worst financial product as careful usage helps you improve the credit score, effectively attaining the optimum creditworthiness among the top-most percentile of the population. Whereas indisciplined usage can lead you to a serious financial mess following which you’ll be obligated to take external help in restructuring your debt and further lines of credit to clear credit card dues.

1. Select Credit Cards According to Usage

Considering all the scheduled commercial banks including 12 public sector lenders, 22 domestically-incorporated private sector players and 44 foreign banks operating in India, there are ample credit card options available for retail customers, as well as corporate clientele.  
While applying for a credit card, you should be careful enough to compare and evaluate all the possible benefits offered by multiple credit cards including the reward points structure, cashback, discounts, co-branded deals, against their annual maintenance charges, joining fees, the option of fee waivers and additional advantages.  
The primary reasons for devising multiple credit cards include varying income, spending levels, dynamic choices, divergent categories of spending. Out of the large pool of customers, there will be some who have the heaviest spending on fuel, some will have shopping as the major category, while others must be focused on either have travel or dining.

2. Avoid Using Credit Cards to Fulfil Wants

As the name suggests, credit cards offer you a line of credit on much simpler terms as compared to personal loans or other unsecured forms of credit. If you have a decent credit score with a healthy repayment history, with your income levels breaching a predefined threshold, lenders can willingly offer you a credit card with a limit of up to 10 times your monthly income.  
But, getting a higher credit limit doesn’t necessarily mean that you should exhaust it on all your desires and wants as the money lying in your bank account wouldn’t be enough to service the upcoming debt obligations. Therefore, credit cards should be judiciously used only for a handful of periodic expenses, alongside several big-ticket purchases and other products & services that are needed in the household.  
Utilising credit cards on unwarranted things can potentially develop a habit of overspending as you may end up buying many things that are actually not required in the near term. Using credit cards while making the payment may seem like you haven’t spent the money, but the bills accumulate as you swipe. At the end of the day, you become liable to service the upcoming bills

3. Always Pay Full Credit Card Bills before the Due Date

Credit card bills should be dealt with priority as a single miss on the due date immediately hits the credit score, effectively lowering your creditworthiness. Credit card issuers also allow you to split your bills, converting the big-ticket purchases into small EMIs that can be repaid in a period of up to 36 months. This arrangement attracts predefined processing fees, interest rates and applicable tax on the interest amount.  
But, if you roll over your credit card bill by paying only the minimum balance, you end up paying interest on interest. This situation can potentially lead you to a never-ending debt trap as paying interest on the interest amount enlarges your overall debt over a period of time.  
Missing the due dates of credit card bills, over-utilising credit, and converting multiple transactions into EMI is always excellent from the lender’s point of view, as the bank will earn more for each of the aforementioned actions. While on the other hand, the credit score of the individual get hammered like anything if you overdo these things.  
As a result of this, you’ll be tagged as a subprime borrower after a considerable period with a damaged credit score following which you’ll no longer remain eligible for other categories of secured, as well as unsecured lines of credits including a home loan, auto loan, and loan against securities, etc. Even if you remain eligible for secured loans, the banks and NBFCs will charge higher interest rates.

4. Budget your Monthly Expenses with Credit Cards

If used carefully, credit cards can be very helpful in planning your monthly budgets as you’ll be able to track all monthly expenses from within the bills, the categories of spending and the spends on periodic requirements.  
Nowadays, most credit cards users are equipped with digital systems, be it through their smartphones, tablets, laptop or personal computer. Using credit cards for all your monthly expenses can be a wise decision as all the expenditures will be recorded and you can easily navigate, track and review the cost heads.  
With this, you can also plan to invest the money lying in your bank account into short-term and low-risk securities as you’ll be billed after every 50 days. And those 50 days, the credit cards issuers are facilitating interest-free money to you.  
This arrangement requires utmost precision and adequate availability of funds in the bank. People living paycheck-to-paycheck can land themselves into serious troubles if they invest the money in the bank account and continue leveraging through a credit card. If you do so, you’ll be soon required to apply for other credit facilities to repay your credit card debts.

Additional Info: Get Rs. 500 Per Day in a Delay of Credit Card Closure

5. Maximise Co-branded Offers & Benefits on Credit Cards

Credit cards are often bundled with multiple benefits, effectively providing a wholesome experience to the consumer. The bifurcation within the credit card space is so much so, that we have specialised credit cards for healthcare professionals, frequent travellers, shoppers, diners, and many other categories.

With the ever-expanding number of online shoppers, credit card issuers are tactically providing Co-branded Credit Cards through which users can maximise savings in terms of cash backs and accelerated reward points.

Almost all of the leading banks have partnered with hospitality chains, aviation players, popular dining outlets, e-commerce players and corporations operating in the retail industry. With the presence of all these arrangements, the banks offer rewards, discounts, lucrative deals, cashback and privileges to attract customers.

Though all of these facilities are applicable with certain predefined terms and conditions, including a minimum threshold of spending in a month, quarter, a year or during the sale period.

Combining all these benefits and perks offered by credit cards, users can skillfully shift to credit cards as a preferred mode of payment if they have a stable source of income and can service the credit card bills within the prescribed due dates.