What Is A Credit Card? About Credit Card, Credit Card Meaning, Information

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The simple answer to the question, “What is a credit card?”, is that it is a plastic or a metal card that grants access to credit. It allows you to make purchases, pay your bills, and even withdraw cash from the ATM. However, there is a limit on the amount you can use via your credit card.

The limit depends on numerous factors, like the credit card issuers and the type of cards you choose. Every time you swipe the card, the funds spent get deducted from the limit. As and when you pay the balance, your limit gets restored by that amount.

Knowing what is meant by a credit card helps if you want to apply for one. Read on to learn all about its uses, benefits, and more.

How Does a Credit Card Work?

Your credit card is basically a short-term loan sanctioned by the card issuer. The loan amount is the credit limit sanctioned by the issuer. This limit defines the maximum amount of funds that you can use with the card.

You can pay for lifestyle products, electronics, or medicines both online and offline. When you initiate a payment, your credit card information is passed on to the merchant’s bank via a payment gateway.

A subsequent request gets generated from the merchant bank to your lender. Once the payment is approved, the amount gets deducted from the limit available on your credit card. When you pay the credit card bill, your credit limit gets replenished for that amount.

This deferred payment method, like all loan products, comes with an Annual Percentage Rate (APR). In other words, you are liable to pay interest on the borrowed sum if you fail to repay it in full before the billing cycle’s due date.

However, credit card issuers offer an interest-free payment window (grace period) between the purchase and payment due dates. This window can range from 20-50 days, depending on the issuer. Paying off your balance in full on/before the due date helps you avoid interest charges on the sum.

Alternatively, you can pay the minimum amount due, which is usually 5% of the total balance. Doing so transfers the remaining balance to your next billing cycle, allowing the lender to charge interest on the same.

Keep in mind that you will not be able to use the entire limit until you pay your outstanding balance, including interest levied by the issuer. You can keep a check on your limit, payments, and due dates via the monthly statement issued by the credit card provider.

Benefits of Using a Credit Card

The benefits you can enjoy with a credit card depend on your issuer and card type. It can range from cashback and rewards to complimentary access to certain facilities and more. Listed below are some of the most common benefits you can enjoy with a credit card:

Freedom from Carrying Cash

Credit cards facilitate cashless transactions, eliminating the need for carrying cash, which can be both unsafe and inconvenient. You always run the risk of dropping the cash somewhere or being pick-pocketed.

With a credit card, all you need to do is swipe it at a Point-of-Sale (PoS) machine or enter its details online to make payments. Moreover, if you lose your card, you can easily block it and get a new one.

Hassle-Free Shopping

Credit cards make both online and offline shopping much more convenient. For starters, they free you from budget constraints. With this deferred payment mode, you can purchase goods and services you need today and pay for them at a later date.

You don’t even have to pay interest on the sum if you repay on or before the due date. Moreover, issuers now offer the EMI conversion option. With this, you can break up the cost of big-ticket items, like ACs and refrigerators, into manageable low-cost monthly instalments. This way, you can shop without overburdening your finances.

Exciting Rewards, Cashbacks, Discounts, and Offers

Credit cards bring you rewards on both online and offline spending. Depending on the type of credit card you choose, you may even enjoy accelerated rewards on spending in specific categories like dining or travel.

Some issuers and cards might offer merchant-based rewards for shopping on partner sites/stores. You can redeem the reward points you collect for merchandise, gifts, or vouchers listed in the rewards catalogue.

Depending on the rewards system in place, you can also trade them in for air miles, fuel purchases, flights, or hotel bookings. All in all, credit cards bring you a host of exciting rewards, from fuel surcharge waivers to discounts and cashback on online deals.

Premium Perks

Apart from spend-based rewards, credit cards bring you premium lifestyle benefits. Many come with complimentary domestic and international airport lounge access, free movie tickets, and much more.

Some offer travel, personal accident, and lost baggage insurance covers. You could even avail free golf lessons, concierge service, and free luxury hotel memberships with top-tier credit cards.

Easy Cash Withdrawals

Your credit card gives you access to instant cash. With the cash withdrawal feature, you can swipe the card at an ATM and withdraw the amount you need to meet the immediate cash crunch.

However, remember that cash withdrawals attract a nominal fee on the withdrawn amount. So, be careful when opting for this and ensure you pay the bill before the payment due date.

Worldwide Acceptance

Credit cards happen to be one of the common methods of payment globally. This makes planning international trips easy since you don’t have to worry about carrying cash and converting it to the right currency. Since most Indian credit cards are internationally valid, you can use them to make payments anywhere in the world.

Handy During Emergencies

In many ways, a credit card with a high credit limit works like a personal loan during times of need. For instance, if you need immediate funds to clear medical bills or fund a treatment plan, you can fall back on your credit card.

You can repay the borrowed sum before the due date to avoid any penalty interest. Issuers now even offer the EMI option while paying your credit card bill. This way, you can manage your finances without any stress.

Credit Score Boost

A credit score is crucial in getting easy and affordable access to loans and other forms of credit. With the right use, your credit card can help boost your creditworthiness and enable you to get future credit with ease. Given this, these cards are often a great way to start your journey into credit.

How is a Credit Card Different from a Debit Card?

A credit card and a debit card differ from one another in various aspects. Here is a brief list of the differences between credit card and debit card:

Origin of Funds

When you use a credit card, you essentially borrow money. The issuer pays on your behalf, and you repay the dues at a later, predetermined date. However, when you use a debit card, you use existing funds from your bank account.

Maimum Limit

Since credit cards come with a limit, your usage is restricted to the predetermined limit. On the other hand, debit cards don’t come with such limits. Instead, your usage depends solely on the amount that you hold in your bank account.

Repayment

With credit cards, you will have to repay the amount that you borrowed on or before the stipulated due date. However, since debit cards use existing funds, you don’t have to make any repayments.

Penalties and Interest

If you don’t pay your credit card dues within the stipulated due date, you will be liable to pay a penalty and interest on the unpaid amount. With debit cards, there are no such obligations.

Rewards

Credit cards offer exciting rewards, offers, and discounts when you use them for purchases. Although debit cards also offer rewards, they are comparatively fewer.

Impact on Credit Score

Debit cards do not have any impact on your credit score. Credit cards, on the other hand, can affect your credit score. This impact can be positive or negative, depending on how you use and manage your credit card.

Components of a Credit Card

Along with understanding the meaning of a credit card, it is equally important to be aware of the components that make up a credit card. Here’s a quick look at these aspects.

Credit Card Issuer’s Logo

The bank or financial institution issuing the credit card has its logo printed on the card, along with details about its payment network.

Cardholder’s Name and Credit Card Number

Your legal name, as registered with the bank, is printed on the credit card, along with a 16-digit card number. That said, American Express (Amex) issues credit cards with only 15 digits.

Magnetic Strip

The magnetic strip on a credit card contains the credit card data. It is read by PoS machines when you swipe your card to pay for a purchase or make any other payment.

Europay, MasterCard, Visa (EMV) Chip

The EMV chip is a small chip on your credit card. Its primary function is to authenticate the card data and produce a unique code for each transaction carried out with the credit card. This makes it difficult for fraudsters to counterfeit your credit card.

Credit Card Expiry Date

The credit card issued to you is valid only for a set period. Both the month as well as the year of expiry are mentioned on your credit card. Upon expiration, the issuer will give a new credit card with a new number.

Signature Box

At the back of the credit card is a signature box where the cardholder is required to affix their legal signature.

CVV Number

The Card Verification Value (CVV) number is a three-digit number that can be found on a credit card. It acts as an added layer of security, especially during online transactions.

How to Choose the Best Credit Card?

Since the credit needs and lifestyle patterns of consumers differ, picking the best credit card is a subjective task. Here are a few key pointers you can keep in mind to streamline your search for the best credit card:

Evaluate your Lifestyle and Expense Patterns

Your credit card should ideally fit your lifestyle. From travel to shopping, lenders now offer credit cards that are custom-made for various lifestyle needs. Remember that the type of card you pick has a bearing on the kind of rewards you can avail of.

For instance, if you are a frequent flyer, a travel credit card may be the best choice. This is because it generally comes with travel rewards like priority boarding, hotel discounts, lounge access etc.

Review Fees and Charges

Credit cards come with certain overhead expenses, like fees and charges. For instance, a fee will be levied on the non-payment or part-payment of your monthly credit card bill if you fail to clear it before the due date.

Similarly, you also have to pay annual and renewal fees for a credit card. Since these figures vary from one lender to another, you should compare them before signing up for a credit card.

Assess the Lender’s Rewards Program

This helps you understand if the rewards are going to be paid in points, cashback or flyer miles. You can correlate the proposed reward structure with your spending habits and lifestyle to pick a rewards programme that suits you best.

Similarly, it is also important to evaluate the process of redeeming your rewards since lenders may only allow this at partner websites or stores.

Check the Payment Options

You wouldn’t want a credit card that comes with a complicated payment procedure. To ensure that you clear credit bills efficiently, opt for a card that allows payments through multiple channels.

Look for Add-On Benefits

Check out the other add-on bonuses on credit cards, meaning everything from welcome bonuses to discounts on lifestyle brands and restaurants. Doing so will help you maximise the rewards offered.

Now that you know what the use of a credit card is and its benefits, among other features, make the best use of this information. Remember to repay the dues on time to ensure you don’t overburden your finances and hurt your creditworthiness.

Bajaj Markets enables you to choose a card from leading issuers and enjoy the host of benefits that come with it. You can apply online without any hassles and get the credit card best suited for your needs.

Credit Cards Partners at Bajaj Markets

Non Partners Credit Cards

The purpose of a credit card is to facilitate cashless transactions. It allows you to buy a product or service and pay for it later, and these dues must be paid before the due date.

Yes. You can apply for a credit card online on Bajaj Markets. Alternatively, you can apply for credit cards by visiting the website of your preferred issuer.

The minimum credit score required to apply for a credit card tends to vary from one bank to another. However, applicants with a credit score of at least 700 and above have a greater chance of getting a credit card.

You can begin your credit card journey by checking your eligibility for the card you want. If you meet all the requirements, you can apply online or offline with the issuer. You can also choose online platforms like Bajaj Markets to enjoy easy hassle-free applications.

Your credit score is a three-digit numeric summary of your creditworthiness, which ranges from 300 to 900. It denotes your creditworthiness. The higher the number, the more creditworthy the individual is.

Credit history, on the other hand, is a record of the debts and other loan obligations that you repay. Financial institutions typically tend to favour individuals with an impeccable record of repayments.

Before you apply for a credit card, you should keep a few things in mind. For instance, you should first consider your lifestyle and spending patterns to know the type of credit card you require. Similarly, check to see if the rewards offered by the card fit these spending habits. Next, you should be aware of the maximum credit limit sanctioned with the card.

Assessing the fees and charges associated with the card gives you an idea of the cost you will have to bear. Reviewing the card’s interest-free period helps you better manage your finances and make timely payments.

Cashless transactions via credit cards eliminate the need to carry cash. However, you can also use your credit card to withdraw cash from an ATM when in need of immediate funds. Apart from payment convenience, credit cards bring you a plethora of rewards, discounts, offers, and cashback.

With these, the cards make each spend rewarding. Not just that, the deferred payment benefit of your credit card comes in handy during emergencies. You can meet emergency expenses with the card and repay the sum at a later date.

Lastly, diligently sticking to your payment due dates helps boost your credit score. A good credit score qualifies you for better loan offers at lower interest rates in the future.

You can apply for different types of credit cards depending on your needs and preferences. Rewards credit cards bring spend-based rewards on every expense, while lifestyle credit cards offer discounts on categories like dining, entertainment, etc.

Cashback credit cards convert a percentage of your spending into cashback rewards that can be adjusted against your statement. Travel credit cards offer reward points that can be redeemed for air miles, hotel booking, and flight tickets.

Fuel credit cards offer reward points on fuel purchases at select gas stations, helping you save on fuel costs. Other than these unsecured cards, you also have the option of secured credit cards. These cards are typically issued against FDs and have lower credit limits than unsecured cards.

Secured credit cards are a great option for individuals new to credit or those that have a bad credit score. These are the common variants, but you can find other types of credit cards in the market.

Credit cards issued in India usually come with a validity of 3-5 years.

You can buy almost anything with a credit card, including but not limited to electronic gadgets like smartphones, TVs, flight tickets and event tickets. You can also book hotel rooms and rent cars with a credit card.

However, buying a big-ticket item on your credit card makes more sense as you can repay the outstanding cost at a later date. Additionally, buying such items on credit card EMI helps ease your expense burden quite significantly.

Your legal heir will not be responsible for clearing the credit card liability in case of your demise. Since credit cards function much like unsecured loans, there is no collateral against them.

Hence, if the cardholder dies, the bank/NBFC has to write off the debt as well. However, if it is a joint credit card, the surviving co-holder will have to clear any outstanding debts.

A credit card is a plastic or metal card issued by financial institutions. When you use a credit card, you borrow from the issuer and repay at a later date. Failing to repay in full before the due date attracts a penalty in the form of interest.