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Credit card: all you need to know

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  The world of credit cards may seem confusing for a beginner. There are several banks offering numerous credit cards each with different features and benefits. There is not a single card that fits the definition of ‘best credit card’ as different people have different financial needs. The right credit card for you is the one that best suits your spending personality.

Here is a comprehensive guide to help you choose and apply for a credit card. But let us first get familiar with the working of a credit card.

Understanding How Credit Cards Work

in search of money

With a credit card, bank lets you make purchases on credit and repay at a later date. A credit limit is assigned to you and you cannot spend beyond your card. Your income, credit history, job stability and a lot more comes into play to decide your credit limit.

Credit cards offer an interest-free period of 45-50 days. So, if you clear all your credit card dues on time, you would not have to pay any interest on the purchases that you have made. However, cash advances (withdrawals) do not qualify for the interest-free period. If you cannot afford to pay the total outstanding amount on your credit card, banks give you the option of paying a minimum amount and roll-over the rest of the balance. This unpaid balance will attract finance charges (interest) on daily basis.

Let’s take an example to understand it more clearly:

Somebody named Tejas has a credit card limit of 1 lakh. His bills are generated on 19th of every month and his due date or he has to pay the bills on 9th of the next month.The rate of interest of his card is 3.35% per month(here let’s take SBI). He has an unpaid balance(due) of ₹ 3,200 on his credit card which he paid in full on 5th Oct 2020. He made the following purchases-

Type of PurchaseDateAmount
Grocery25th Sept 2020₹ 2,500
Fuel7th Oct 2020₹ 3,500
Shopping10th Oct 2020₹ 6,000
Dining17th Oct 2020₹ 500

The interest on his credit card will be calculated in the following manner-

₹ 3,200 for 21 days (9th Sept to 5th Oct) @3.35% p.m. = ₹ 75.04
₹ 2,500 for 10 days (25th Sept to 5th Oct) @3.35% p.m. = ₹ 27.92

The total interest that Tejas would have to be pay will be ₹ 102.96. His fuel, shopping and dining expenses would not attract any financial charges as the overdue amount has already been paid off on the 5th of October.

Pros and Cons of Credit Cards

1-Credit cards are easy to carry and use; definitely better than carrying a wad of cash everywhere.1-Credit cards have high rates of interest which can be anywhere between 25% and 45% annually.
2-They are a lot safer as the user has limited liability in case of credit card fraud.2-Additional fees and charges are associated with credit cards such as annual fee, renewal fee, late payment penalty, etc.
3-Credit cards give you extra financial padding. You can use them in times of cash crunch.3-When you miss payments on credit cards and continue spending too much, a spiral of debt starts.
4-With credit cards, you can earn while you spend, in the form of rewards and cash backs.4-Credit cards are usually quite expensive for international use except for some customized cards.
5-Several benefits are offered with credit cards such as airport lounge access, gift vouchers and freebies as milestone benefit.5-Missed credit card payments have a direct impact on your credit score.



From earning simple rewards to getting travel benefits, you will find credit cards for all types of needs. The choice for the right card depends on the benefit that you would like to avail. So, the first step should be to decide your goals related to a credit card. If you are just beginning your credit journey, you might have only limited options. New users can only get approved for basic credit cards, yet you should choose the best among the available options. Sometimes, you may get emails about pre-approved credit cards; you can also proceed with them but you should know that getting pre-approved does not guarantee that you would get the card.

Given below are a few simple tips with which you can start your search for the right credit card-

  •        Analyze your expenses to find out where you spend the most and the least.
  • Be honest to yourself about financial habits.
  • Read about credit cards and make a list of the top benefits you would like to avail.
  • Know your budget and how much extra would you be able to pay in EMIs.
  • Decide whether you would like to pay annual fee on a card or not.
  • Do not fall for the advertised offers; do your own research.

On the basis of the above analysis, you can shortlist a few credit cards and check your elegibility for the same. If you are eligible for one from the list, you can proceed with the application.

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How to Apply for a Credit Card

Now that you have selected a credit card, the question is how you should apply for it. There are a few standard methods to apply for a credit card.


If you have already chosen a credit card or a bank, you can directly visit the bank’s website and apply for the same. This is a good method when you would like to start your credit journey with a bank you have already known. It could be a bank with which you have a savings account or a salary account. You can visit the credit card section on the bank’s website and apply for the same by providing your details. Alternately, you can login to your online banking portal and apply directly from there.


You can also walk into the nearest bank branch to apply for a credit card, if you have a preferred bank in mind. Make sure that you take copies of relevant documents such as identity proof, address proof and income proof along with the originals. All of these will be needed for a successful application. A bank representative will come and assist you through the entire application process

Ways to Use Credit Card “Smartly”

Now that you have also joined the bandwagon of credit card users, you should not start splurging. Credit cards are the most helpful when you make smart use of these. So, here are a few points to help you start with your credit card the right way-

Understand your billing cycle

Your credit card has a billing cycle and your statement will be generated for the same period. The bill due date usually falls after 10-15 days of bill generation. This is why credit cards have an interest-free period of up to 45-50 days. For example, your billing cycle is 5th to 5th and the due date is 20th. In this case, if you make a transaction on 6th of December, the bill for the same will be generated on the next 5th January and you have to pay the bill on 20th January. This transaction will enjoy an interest-free period of full 45 days.

  • Pay your bills in full and on time–

This is the first and the most important thing to remember about credit cards. As already mentioned, missed payments and late payments on credit card can lead to high interest charges which would not take much time to accumulate into a debt pile. So always pay your credit card bills on time and pay the total outstanding amount. Paying just the minimum amount due only saves you from paying the late fee, but interest will still be charged.

Maintain a good credit utilization ratio– Credit utilization ratio is the ratio of your debts to the total credit limit available to you. A lower ratio is considered better, and it would also lead to a good Credit score. You can set your personal limits, say 30 per cent. When you reach this limit try not to ring more bills on your credit card until you pay some off. After some time, if the bank finds you to be a responsible borrower, it can invite you for a limit increase. You should accept the same if you want to improve your utilization ratio.

Check your statement regularly

Make it a habit to keep track of your credit card spending. Login to your credit card account and check your credit limit balance and the expenses you have incurred so far. Sometimes, viewing the list of your expenses is more impactful. Check your statement and if you find a fraudulent transaction, immediately report it with the bank.

Don’t use credit card to make ends meet– Remember that credit card is a type of borrowing and you should not use this for discretionary expenses. And if you do, make sure that you go only up to a limit that you can afford. Avoid cash advance at all costs. Use your card to buy things for which you cannot afford to pay upfront.

Using credit card responsibly can go a long way in building a good credit score. You can do this by maintaining a fair utilization ratio and paying your bills in full. Start with great credit habits, take charge of your expenses and you will go a long way.

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