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What is a Credit Card?- A Detailed Guide to Credit Cards

Updated on May 28, 2020 , 1140 views

A credit card is basically a plastic card that is issued by financial companies such as banks, service providers, store and other issuers. It lets you borrow money to purchase goods & services on credit. In today's times, where most people prefer digital payments, credit cards are convenient ways of buying things.

It comes with a credit limit, which is set by the respective financial companies. Ideally, this limit depends upon your Credit Score. The higher the score, the higher is the limit to borrow money. Just in case you don’t know what a credit score is- it is the score given to individuals, which determines their creditworthiness.

Credit Cards

Credit Card Eligibility

Here're some basic requirements:

  • You should be a minimum 18 years old.
  • The minimum salary required is around 3 lakhs per annum.
  • Nationality and residential status can be a constraint. Citizens, residents and non-residents are eligible to apply. However, a few cards could be only available to Indian citizens.
  • A good credit score is required for easy approval.
  • Your existing debt is reviewed to make sure it doesn’t exceed the company’s limit.

How does Credit Card Work in India?

When money is borrowed using a card, you need to pay back the amount within the grace period, which is usually 30 days. In case, you fail to repay the money within the grace period, interest will start accruing on the outstanding amount. Moreover, an additional amount will be imposed as a late fee.

Types of Credit Cards

When it comes to buying a card there are a lot of options available today. But you need to choose the right card based on your personal expenses and lifestyle. Here are some of the widely used types:

1. Balance Transfer Credit Cards

This card is meant for those who have a lot of debt. A balance transfer card will allow you to transfer a high-interest credit card balance to the one having a low-interest rate. It gives you a period of 6-12 months to pay off the interest rates.

2. Low Interest or 0% Annual Percentage Rate (APR) Credit Cards

It allows you to pay zero interest on purchases & balance transfers for a certain time period. These come with initially low introductory APR that increases after a certain period or a single low fixed-rate annual percentage rate that doesn’t change.

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3. Student Credit Cards

This is made for college students as they have little to no credit history. It generally comes with a small credit limit. This can be a good first option to start with.

4. Rewards Credit Cards

Reward cards, as the name suggests are those that offer rewards on card purchases. Rewards can be in the form of cashback, credit points, air miles, gift certificates, etc.

5. Secured Credit Cards

An initial amount needs to be deposited as a security, which is usually equal to or greater than the credit limit of the card issued. This is a good option for those who have a bad credit score. With a secured card, you can build up your score and eventually move to an unsecured card.

6. Unsecured Credit Cards

These are the most preferred type of credit cards. An unsecured type doesn’t involve any type of security deposit. In case you fail to pay the bills, the creditor might choose other options like referring your account to a third-party debt collector, reporting the negligent behavior to the credit bureau or suing you in court.

7. Silver Credit Cards

Anyone that earns a nominal salary and has an adequate amount of work experience is eligible to apply for a silver credit card. The membership fee for these cards is quite low and no interest is charged for the initial period of six to nine months for balance transfers.

8. Gold Credit Cards

This card comes with a lot of benefits like high cash withdrawal limits, high credit limits, rewards, cashback offers and Travel Insurance. Anyone with a high salary and a good credit score can apply for this card.

9. Platinum or Titanium Card

These are basically a premium credit card that offers a lot of privileges and benefits to the user. They have their own rewards program that includes, reward points, cash back offers, air miles, gift redemption etc.

10. Prepaid Credit Cards

Prepaid credit cards require you to load an amount of money into the card in order to carry out transactions and enjoy the benefits. Your outstanding balance is the amount that is left in the card after making a transaction.

How to Apply for a Credit Card

You can apply online as well as by directly contacting the bank branch. Online being more easy and convenient for the hassle-free process.

Here is a list of documents that are required:

  • Passport-size photograph
  • Identity proof (PAN, Aadhaar, etc.)
  • Bank statements
  • Proof of residence (PAN, Aadhaar etc.)
  • Latest salary slips
  • Form 16

You can apply for a card online by simply heading over to the company website, choosing your desired card type and then filling up the application form with the correct information followed by the submission of necessary documents. Similarly, the offline process for applying for a credit card requires you to fill up the application form at the respective bank for the card type you choose and then submit the documents that are required along with the form.

Best Credit Card Companies in India

Some of the most popular credit cards in India are:

Disclaimer:
All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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