What is Credit Card & How to Apply it Online – 2024

Credit cards are magical rectangles that are designed to make your wallet light, letting you go cashless and still spend without giving a second thought. Want to know what a credit card? Here in this guide, we will help you traverse through the basics of credit cards, its uses, advantages and a lot more. Read on to explore more about credit cards.

What is the Meaning of Credit Cards?

Credit cards can be thought of as metallic or plastic rectangular cards that a credit card company or bank issues to facilitate the cardholder’s utilization of credit to cover expenses while purchasing goods and services from merchants who accept credit card payments. However, the utilized amount has to be paid back along with any applicable interests or agreed upon charges after the generation of credit card bill statement.

What are the Different Type of Credit Cards

Credit cards are available in a diverse range, spanning from fundamental credit cards with modest credit limits and straightforward features to ultra-premium cards that complement a luxurious and extravagant lifestyle. The market is simply overwhelming with the number of choices available in the name of credit cards. Here we list down a few different types of credit cards that are prevalent in India:

1. Rewards Credit Cards

These credit cards typically offer incentives such as cashback points, cash rebates, or discounts based on a percentage of your expenditures. These cashback points can be availed in varied categories such as fuel, dining options, groceries, and a lot more based on the offerings of the credit card issuing company. This renders the users a feasible alternative for day-to-day expenditures, especially when they are confident enough to settle the card balance promptly as per the payment schedule. 

2. Life Time Free Credit Cards

Lifetime free credit cards, as you can make out from the name, are credit cards that do not charge an annual fee or, in some cases, joining fees. Also, while making transactions, one can earn cash points and other rewards. Most companies also offer these lifetime credit cards to their customers as a promotional activity. 

3. Co-Branded Credit Cards

Co-branded credit cards are those credit cards in which banks partner with other shopping brands and websites and launch credit cards that enable purchases on a specific online retail platform. Using these credit cards, customers can avail good discounts, and simultaneously, the websites also make some loyal customers.

4.Travel Credit Cards

Just like shopping credit cards, banks also partner with travel companies to come up with travel credit cards that allow frequent travelers and backpackers to avail huge discounts during their trips. These credit cards can further be used for booking travel packages, tickets and other travel essentials making use of the reward points one earns while spending on travel activities. To know more about what is the best travel credit card, you can hit the internet, make a comparative analysis and apply for one.

5. Fuel Credit Cards

Fuel credit cards are a merger launched by banks and fuel companies in unity. These credit cards offer some awesome cashback and reward points when you purchase fuel from a petrol pump that partners with the oil company launching the credit card. 

6. Premium Credit Cards

These are some of the most expensive credit card categories that are offered to provide comfort factor to the customers. Right from providing access to airport lounges, golf course visits, discounts on booking flights, healthcare discounts, and a lot more, these cards offer multiple facilities to the card owner. However, these cards are on the pricier side and cost you more when compared to a regular credit card but offer the customers high-end luxury and comfort.  

Working of Credit Cards

Credit cards serve as a versatile financial instrument, facilitating seamless transactions both online and offline. They offer a convenient method for settling a diverse range of bills, contributing to the efficiency and ease of managing financial responsibilities. When you use your credit cards at either of the stores, your credit card details are transmitted to the merchant’s associated bank. Subsequently, the bank seeks authorization from the credit card network to proceed with the processing of the transaction. 

Following this, your credit card issuer bank verifies your details and further approves or declines your transaction. Upon successful completion of the transaction, the merchant receives the paid amount, and your credit limit is reduced as per the transaction amount. At the end of the billing cycle, your credit card issuing bank will forward you the monthly statement showcasing your transactions of the month, previous and new balance along with the due date and payment due date. 

Features of Credit Cards

• Credit cards usually come in metal or plastic card format, which can be swiped at POS to make payments to merchants.
• Credit cards come with a specific credit limit that defines the amount the card owner can use for his/her expenditures.
• The credit card transactions also have a payback date that is generated during the monthly billing cycle. This period usually varies between 30 to 50 days after the purchase. 
• The credit card limit is determined by the bank and is issued as per the credit history and credit score of the cardholder.
• Credit cards also have a grace period during which you are required to settle the borrowed amount from your credit card limit with the bank. In addition to this grace period, you are granted an additional 15-20 days between the statement reception date and the deadline for payment. All in all, you get about 45 to 50 days to make the credit card payments. 

Eligibility Criteria For Credit Card

To be eligible to apply for a credit card, the candidate should have attained 18 years of age and should be salaried or self-employed. Usually, credit cards are offered to people who earn a minimum of 1 to 3 lakhs annually.

The most basic criteria that banks and credit card companies look for are the income and credit score of the customer who wishes to purchase a credit card or is offered a credit card. Employment status and current debts are also crucial for determining if one is eligible to apply for credit cards. Also, it is not mandatory that you have to be a salaried person to apply for credit cards as long as you can submit proof of a stable income, which means you can also get credit cards if you are self-employed or have other earning sources. All you need to do is to submit your ITR as income proof. However, this may vary from bank to bank as per the criteria they set.

Documents Required For Credit Card

Also, you will be required to submit a few documents while applying for a credit card; here are the most common of them:

• Passport-size photographs
• Form 16
• Latest salary slips
• Bank statements
• Proof of identity (passport, Aadhar card, PAN card, etc.)
• ITR
• Proof of business ( in case self-employed)
• Address proof (utility bills, electricity bills, PAN cards, Aadhar cards, etc.)
• Completed form

How to Get the Credit Card?

Credit cards facilitate small monthly loans in the form of purchases and are easily accessible. One can get a credit card with these easy steps:

1. Choose Your Credit Card

There is a diverse range of credit cards that different banks offer; firstly, you need to choose the type of credit card that you wish to apply for based on your requirements and usage pattern. Once you have picked a preferred credit card of a particular bank, you need to check it out with the bank if you are eligible to apply for the same and find out the documents that you need to submit along with the credit card application.

2. Apply for the Card

Once you get a green signal for the credit card, you can submit your credit card application along with your identity proof, address proof, and other requisites. You can also apply it online and follow the steps as mentioned by the bank from which you seek a credit card. Some credit cards have an annual charge, and the same is included in your monthly statements. 

3. Card Activation

After successful completion of the credit card application, you will receive the credit card at your doorsteps. Next, you have to collect the same, showcasing your identity proof, and you are all set to use your credit card to explore a range of rewards, cashback, and a lot more. But first, you will be required to change the pin to get started with making transactions. 

Credit cards prove beneficial for both making purchases and unlocking potential rewards. Simultaneously, they play a crucial role in establishing and enhancing your credit history. However, besides just letting you borrow money, credit cards also come with some associated charges. Here are a few of them: 

Charges Associated With Credit Card

• Annual Maintenance charge: It is an annual fee charged once a year for using the credit cards and may vary from one bank to another. However, there are banks that do not charge any such annual charges.
• Late payment charges: This can be thought of as a penalty that is imposed on the individual when one fails to make timely payments. 
• Over Limit Fee: Every credit card comes with a credit limit. Some banks may or may not allow the credit card holder to spend above their credit limit. However, in cases where banks allow expenses beyond the credit limit, a hefty fee is charged as the over-limit fee when you spend beyond your credit limit. 
• Cash advance fee: Some credit cards also let you withdraw cash from your credit card. For any such ATM withdrawals, an additional fee is levied on the amount of withdrawal, known as the cash advance fee. It is generally capped at 2.5% of the withdrawn amount, but it may vary from bank to bank that offers the credit card. 

Relationship Between Credit Card and Credit Score

The credit score of an individual has a very close relation with one’s eligibility of acquiring a credit card. It determines your ability to borrow money in the form of loans, home mortgages, car loans, personal loans, and even credit cards. It also determines the percentage of interest that you will be charged based on your credit history and repayment patterns. To hold a good credit score, you generally have to obtain some credit in the history, and it should be paid back timely in order to score a good credit score. If you do not have a credit score, your credit cards may be your first baby step in the world of credit. Credit cards influence your credit score directly and can make or break your credit score. 

Whilst making timely payments can boost your credit score, failure to make payments on time can bring your credit score down. Also, applying for too many credit cards in a short time span can also adversely affect your credit score. 

What is a Debit card?

Debit cards, unlike credit cards, directly deduct money from your existing bank account while you use it. Using debit cards, you can only spend the amount of money that you have in your bank account. It facilitates the users to go cash-free as they are no longer required to wait at ATM queues or carry cash as they can directly use debit cards at stores and online platforms. 

Difference Between Credit Card & Debit Card

How to Select Best Credit Card For Yourself

Selecting a credit card that aligns with your distinct spending patterns and financial plan is crucial for optimizing the value derived from your card expenditures. Here are a few things that you need to keep in mind while picking on a credit card: 

• Annual fee
• Interest rate
• Penalties
• Rewards and offers
• Number of cards

What is the Need of Credit Card

Many people wonder what is the use of a credit card? To answer it right, you need to know that credit cards can serve multipurpose and one of the most important reasons why people prefer credit cards is that these cards can provide you instant credit when you are running short of funds. They are multifaceted financial tools that allow immediate access to funds in case of emergencies, unforeseen expenses, or any other shopping requirements as and when a user requires them. You are not required to borrow money from your friends or peers, as credit cards help you meet all types of expenditures with easy and favorable payback methods.

How Do You Build a Credit History With a Credit Card?

To build a good credit history using credit cards, you should ensure timely repayments. Make sure that you pay off the outstanding amount on or before the due date every month to reap dual benefits of obtaining a credit score besides enjoying the benefits of free credit usage every month. Paying timely also increases your credit limit overtime based on the discretion of the credit card issuer.

How to Get a Credit Card Without a Credit History?

If you do not hold a credit history, then it might be a slightly challenging task to acquire a credit card. However, it is not impossible. If you have no CIBIL score, you can apply for a secure credit card that is issued to you against fixed deposits. Almost all banks offer secured credit cards, and thus, you do not have to worry much about the same. The process may hardly take a few minutes as it is issued against a fixed deposit. You can further use the credit card and make timely payments to enhance your CIBIL. Banks also offer credit cards based on your savings account and the transactions made on it. In some cases, you can also be issued a credit card against your income proof, which gives an assurance to the bank that you are capable of paying back.

What are Credit Card Interest Rates?

The interest rates levied on credit card payments usually range between 2.5 to 3.5% a month. However, the interest rates may vary from bank to bank and from one credit card issuer to another. On the flip side, one should ensure timely payments of the credit card dues to avoid paying interest. 

How is the Credit Card Bill Payment Done? 

There are various ways by which you can pay your credit card bills. Some of them are mentioned below:

1. Internet Banking

To pay your credit card bills through internet banking, here is what you need to follow:

• Log in to your net banking account.
• Navigate to the credit card section.
• If you are paying your credit card bill for the first time using Internet banking, you will have to register your credit card, for which you will be required to enter your card details.
• If you have already registered your card previously, you can select the card and click transact to choose your payment method.
• Enter the amount that you wish to pay and finish your transaction. 

2. Funds Transfer Online

You can also pay your credit card bills through NEFT, which allows you to directly transfer the amount from your savings account for credit card payments. But for this, you must add your credit card as a beneficiary beforehand. You will have to enter the card details, your name, the bank name, IFSC, and the branch to add your credit card as a beneficiary. The process may take about 30 minutes, and your credit card will be added as a beneficiary. Further, you can transfer funds from your account to your credit card.

3. Auto Debit Facility

As the name suggests, this payment mode allows auto debit of funds from your account towards credit card payment. Here is how you can activate the auto payment method:

• Firstly, log in to your net banking account and register your card for the auto-debit payment method.
• Now go to the credit card section and select the auto-debit option.
• Select the option between paying minimum due or full due as per your requirement.
• If required, you can also set the maximum amount payable.
• Confirm and activate the auto debit payment method.
• From next month onwards, you will not be required to manually pay your credit card bills as this option will pay the amount automatically on the due date of payments from your account.

4. Mobile Wallets

Many mobile wallets also allow payment of credit card bills. Here is how you can use mobile wallets for credit card bill payments:

• Link your wallet to your savings account
• Add money to your wallet
• Enter your credit card details and register your credit card
• Go to the credit card payment section
• Add the amount you wish to pay for credit card settlements and complete the transaction

5. Offline payment method

You can pay your credit card bills offline by visiting your bank’s ATM. Here is how you can proceed with it:

• Visit the nearest bank ATM
• Insert your debit card into the ATM machine
• Click on the credit card bill payment option
• Feed the amount you wish to pay for your credit card dues and complete the transaction

To pay offline, you can also visit your credit card issuing bank and fill out a cash deposit slip by entering your credit card details and the amount to be paid and submit the same at the counter. You can also seek assistance from the helpdesk to make credit card payments over the counter.

How Does Credit Card Interest Rate Work?

If you have not paid your credit card dues, the credit card issuer will multiply the amount by the credit card interest rate on a daily basis and add it to the amount that you owe. The daily rate is taken out by dividing the annual interest rate (APR) by 365.

Example:

For instance, let us take the APR as 20%, then the daily rate would be 0.05(20/365). So if you hold an outstanding balance of INR 500, on day 1, the interest will be INR 0.25, which makes the amount INR 500.25 the total amount for day 2. The same steps are followed until you make the payments.  

What is the Limit of Credit Card?

The minimum amount due on your credit card is the minimum amount that the credit card holder has to pay on or before the due date. This amount usually makes up 5% of the total outstanding amount. Failure to pay the amount may sometimes withhold any further transactions on credit cards. Thus, it is important that you make the minimum due payments on time to avoid any such hassles. 

The maximum payment on a credit card is the total outstanding amount on the credit card. It is always advisable to pay your credit card dues in full to avoid interest and penalties. 

Do’s and Don’ts While Using Credit Card  

• There is a whole competitive credit card industry that offers different credit interest rates, grace periods, annual fees, credit limits, and other terms and conditions. Make sure that you shop around and make a quick comparison between the various alternatives available before taking a credit card.
• Use the same name for every credit card you apply. If you have a middle name entered in any one of the credit cards, make sure you use the same name in all credit cards.
• While applying for a credit card, read all its terms and conditions very carefully and clear your queries if you are still determining something.
• While applying for a credit card, you may come across people who claim to be fixing your credit. Don’t fall for such false promises because only a positive credit history and timely payments can fix your credit.
• Ensure timely payments of your monthly credit card bills, which will also help you maintain a good credit card score.
• If due to certain issues, you are not able to pay the complete amount, make sure that you pay the minimum amount due at least.
• If you experience any sort of difficulty while making payments, contact the credit card issuer to solve any such issues.
• Make sure that you keep your credit cards and safely so that no one uses it unauthentically. In case of credit card theft or loss, report the same at your earliest.
• Use your credit cards wisely because it helps in building a good credit history which can further help you in taking loans in various sectors.
• Do not buy credit cards under peer pressure. Apply for one only if you want one and do not fear in saying a ‘no’ to salespeople.
• Do not open multiple credit card accounts especially within a short span of time as it can adversely affect your credit score.
• Do not make late payments of credit card bills as it can reduce your credit card score and also result in additional late payment fees.
• Do not overspend and utilize your credit cards to an extent that you can afford. Remember that credit cards are no magical wand that gives you money at any point in time. At the end, you have to pay back so only spend an amount that you can afford to pay back.
• Do not apply for new credit cards frequently if you already have existing balances in other credit cards.
• Don’t share your credit card number with anyone and stay alert of any fraudulent activities.

Advantages and Disadvantages of Credit Card 

Are you applying for a credit card for the first time? Here are a few advantages and disadvantages that you should be aware of while availing a credit card:

1. Advantages

• Credit cards allow easy access to credit which means that you can purchase now even with no funds available in your bank account and pay later.
• Credit cards help in building a line of credit because when you start using credit cards, you build an active credit card history which can help you seek future loans and rental application
• If you have made a large purchase using your credit cards, you can also request for EMI plans so that you do not run down into a financial crunch catering to a bigger sum of repayments in one go.
• Credit cards also offer you multiple incentives and offers that you can avail to benefit out of different deals and discounts.
• Using credit cards, you can maintain a record of your purchases.
• Credit cards also offer insurance policies that can be used in case of damaged or stolen credit cards.
• Credit cards offer the customers flexible payment opportunities.

2. Disadvantages

• Some credit card companies have hidden costs involved, make sure that you research the same before applying for one.
• Credit card frauds have also been reported lately, make sure that you do not share your credit card credentials and OTP with anyone else.
• You may end up paying huge interest rates if you do not make the credit card payments on time.
• You may easily be tempted to overspend as the amount is not being debited from your account. Thus, you should stay alert while using credit cards so as not to incur huge debts.
• People also fall prey to the minimum due trap and believe that they have to pay the minimum due amount mentioned in the billing statement as it is mentioned at the top. However, the total outstanding amount is the total that you need to pay and thus check your account statement twice to ensure the exact amount you have to pay.

Final Word

We hope that this guide helps you understand what is a credit card and lets you discover the perks and hidden secrets of credit cards. But make sure that you swipe responsibly to save yourself from overspending because credit cards can be addictive. So apply for a credit card now and buckle up for financial freedom as never before!

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Disclaimer

This article is solely for educational purposes. Stable Money doesn't take any responsibility for the information or claims made in the blog.