“Much of the growth of our credit cards comes from e-commerce transactions. These have, in fact, almost doubled, from 25% last year to 47% this year. There are two reasons: the offers attached to the cards and the increase in transactions at e-commerce companies such as Amazon, Flipkart and Snapdeal, ”said Vijay Jasuja, Managing Director of SBI Cards & Payment Services Pvt. Ltd.

While discounts and other offers are attractive, both new and frequent users of credit cards are often caught off guard and end up paying hefty penalties. Here are some points that you should always keep in mind when using a credit card.

Initial costs

When credit cards were first introduced, some were offered for free. But now most cards come with membership fees and annual fees depending on the type of card you take and the company that issued the credit card. Membership fees usually start from 200. Then there is an annual fee, which is what you pay for the service provided by the bank. These fees can vary between 299 and 8,000. Some card companies waive these fees if you are a Preferred Customer or make transactions of a certain amount within a certain period of time. For example, if you have an HDFC Bank AllMiles credit card, if you spend $ 15,000 in the first 90 days after the card was installed, the first year membership fee is waived. “By planning your expenses, you can take advantage of this option. For that, you need to have an idea of ​​your overall expenses and plan accordingly, ”said Naveen Kukreja, Managing Director of paisabazaar.com. But don’t spend just to save costs.

Revolving credit

All credit cards have an interest-free period – you don’t have to pay interest on the amount overdue during that period. Usually the interest-free period is 20 to 50 days. After that, you will have to pay interest on the outstanding balance of the card. Typically, interest rates on credit cards are in the range of 22-48% per annum. A credit card carries a higher rate of interest because it is an unsecured loan. So, if your credit card outstanding is 10,000 and the monthly interest rate is 3.25% (39% annually), if you exceed the payment deadline, the interest rate is calculated. as follows: (outstanding x 3.25% x 12 months x number of days) / 365 days. In this example, the interest charged will be 534.25 for the default month. You will also be charged a late payment fee and a service tax on interest and other charges (after the addition of the Swachh Bharat service tax, the service tax is now 14.5%). Late fees can go up to 750. If you assume that paying the minimum amount owed means that you don’t have to pay interest, then you are wrong. The minimum repayment amount is generally 5% of the unpaid amount. You still have to pay interest on the remaining 95% of the amount. “The benefit of paying the minimum amount owed is to protect your credit score. If you don’t pay this, the card issuing company will notify the credit bureau that you are in default, and if you don’t pay for two months, your card will be blocked, ”said Rishi Mehra, founder of Deal4loans.com . , an online loan comparison portal.

Credit limits

Credit cards come with a spending limit, which depends on the type of card, the card company that issued the card, and your eligibility. Amount basically means the amount you are allowed to spend; it changes based on periodic reviews. You can also see the limit on the monthly statement. Although you can spend over your credit card limit, you will be charged for the excess amount. For example, ICICI Bank Ltd charges 2.5% of the amount of the overrun but a minimum of 500.

“If you end up spending more than 60% of your credit limit, it will impact your credit score because banks see it as excessive leverage. If you go over the limit, try to make full payment immediately. Going over your limit has a detrimental effect on your credit score, reducing your chances of borrowing at an attractive interest rate, ”Kukreja said.

Using a credit card for cash

You can get cash using a credit card, but the cash withdrawal limit is usually less than the credit card spending limit. Let’s say if you have an HDFC Bank card, the cash advance limit will be 40% of the credit limit. Also, remember that when you withdraw money by credit card, there is no interest-free period. Therefore, interest will be charged immediately and not later. You also have to pay a cash advance fee, which is typically 2.5% of the amount you withdraw.

Payment options

You can pay in cash, by check, by draft, by telephone, by standing order, by transfer and by Net banking. But if you pay cash at a bank branch or ATM, you will need to pay a cash processing fee of around 100. If you are using an outpost check, you have to pay a processing fee of 25 to 100 depending on your location. the value of the check and the card company. If a check is returned, there is a return charge of approximately 1-3% of the payment amount. If you pay via Net banking, there is no charge.

Card loss

If you lose your card, first inform the bank and block the card because once this is done, you will not be responsible for any transaction. File a report with the police and file a first information report (FIR) and obtain an acknowledgment of receipt of the complaint.

The bank will reissue a card if the first one has been lost, stolen, or damaged, typically for around $ 100. “The loss of the card should be reported to the bank’s hotline immediately and blocked. This must be followed by a written complaint, returning the ticket number of the tele-declaration and with all available documentary evidence, ”said Adhil Shetty, CEO and co-founder of BankBazaar.com, a distribution site and loan comparison. He added that if there is an unauthorized transaction online, the cardholder should check with the bank if they need a copy of the FIR. All banks have some sort of zero liability policy to protect cardholders, especially if card loss is reported within the allotted time. This can vary depending on the type of transaction and reporting deadlines, ”said Shetty.

EMI option

Banks allow you to convert your credit card spending into Equivalent Monthly Installments (EMI). It is a cheaper option than revolving credit. The interest rate on the outstanding credit card is 36-42% per annum, and if you transfer the unpaid amount to an EMI option, the interest will rise to 16-22% per annum depending on of how long you would occupy.

“When converting a credit card expense to EMI, beware of processing fees and foreclosure fees – some lenders charge a penalty of 3-5% of the unpaid amount. Also, be careful not to default on payments, as this will affect the credit rating, ”said Rajiv Raj, co-founder and director of CreditVidya, a credit counseling company.

Reward points

Spending with a credit card earns you reward points that accumulate. The value of these points varies between banks and also depends on the type of card. Banks typically award reward points in the range of 1 to 5 points out of 100 to 150 expenses, depending on the type of card. There are no reward points on transactions such as cash withdrawals, interest charges, card charges, balance transfers, demand drafts, service charge transactions, and disputed transactions.

A credit card is convenient, but at a cost. Understand the product well before you start to use it.

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