What to know before applying for a credit card

In today’s world, the credit card has become the most important of all financial tools. From booking airline tickets to buying groceries, credit cards are the preferred method of payment because of the security and convenience offered. If you are considering getting one of these millions of credit cards, you must be in a state of total confusion and ask yourself endless questions, like all other credit card applicants. It is very important to know how to best use your credit card, otherwise you may end up in a catastrophic financial situation.

Looks and Feel of a Credit Card

A credit card looks like a debit card. However, instead of having funds withdrawn directly from your current account when you make a purchase, you are essentially on a short-term loan. This loan may or may not generate interest, depending on when you repay it.

For purchases made during a given billing cycle (approximately 30 days), you have a short grace period before the payment deadline. If you pay the balance in full on that date, you will not pay interest. If you pay less than the full balance on the due date, you will earn interest on your average daily balance.

2. Why should you get a credit card

Credit cards offer many benefits. First and perhaps most importantly, a credit card used wisely will help you establish your credit. A good credit can help you get future loans – such as a mortgage – at great rates. It can also help you get an apartment or mobile phone approved, avoid utility deposits, and get lower insurance premiums.

Many cards also give you cash back or travel rewards, usually equal to 1% to 2% of the amount you spend. Many reward cards offer hundreds of dollars worth of sign-up bonuses, as well as shopping and travel benefits that can save you money. Many cards have a promotional interest period of 0%. When you receive a card, see your benefits statement for more details.

Let’s eliminate clutter by understanding some important points about credit cards –

Choice of Multiple Cards –

There is a diverse range of credit cards offered by different financial institutions. Having a multitude of options makes it difficult to find the most suitable map. You must find the map that best suits your needs. To find the card that’s right for you, analyze your expenses to see where you can earn big cash back, points, rewards, discounts, miles, discounts, and more. If you travel a lot, a travel credit card will make it easy for you. for you to enjoy your trip without burning your pockets or if you are a shopaholic, you can use a Rewards credit card for shopping trips that allows you to recover your daily purchases.

It’s a kind of readily available loan –

The credit card replaces cash and is widely used nowadays. Credit cards can be used to buy everything, be it fuel, movie tickets, supplies, airline tickets, even for booking at your favorite restaurant, etc. But this useful financial tool can also be transformed into the incarnation of pure evil. Treat credit cards as extra money and forget that this is actually a form of borrowing. The issuer gives you a credit limit, an interest rate and a grace period. You must not forget to effectively manage your credit card debt by paying more than the minimum amount, as well as the interest earned on it at the end of each month.

You must know the interest rates –

The interest rate of a credit card is the price you pay to borrow money. All purchases made by credit card are subject to an interest rate called the annual percentage rate, the TAE. To calculate the amount of interest you will pay each day, convert your annual percentage rate to a daily percentage rate by dividing it by 365. For example: Suppose you have a credit card with a 15% APR. Your daily rate would be 0.041% (15% divided by 365). If you postpone your APR from month to month, all your rewards and benefits will be canceled and you will only have one beautiful card.

How a grace period works –

A grace period is the period during which a credit card company charges no interest on purchases made during that period if you pay the full amount in full before the date of the payment. ‘deadline. The grace period begins at the end of the billing cycle and ends on the due date of the next payment. If you lose your grace period by not paying your full balance by the due date, interest will be charged on the outstanding portion of the balance. Suppose you have a credit card payment period from February 5 to March 4 and your due date is April 1; no interest will be charged on purchases made and paid during this period.

 

How to apply for a credit card

 

After selecting the card with a reasonable annual fee and interest rate, you must follow a fairly detailed procedure to obtain a credit card. Below are the steps

1. Check eligibility –

When you ask for a credit card, the bank will verify your eligibility to apply for the credit card. Different banks have different eligibility criteria. You must be at least 18 or 21 years old to apply for credit cards. Applicants must have a stable source of income, otherwise banks will not be able to issue a credit card to a young adult with no income to repay his or her debt. Your income is one of the main factors on which the bank’s decision to approve your application depends.

 

2. Application Form –

You can apply for the credit card in the traditional way by visiting a bank or applying for instant approval online. In either case, you must complete an application form. Completing the application form can be a laborious and daunting task, but make sure that the information you provide is sufficient and accurate, otherwise your application may be rejected.

 

Indicate your personal information –

The application form requires that you fill in your personal information. The information is needed to confirm your real identity. You must essentially provide the following personal information-

  • Name – Last, first, middle, surname
  • Address including city, state, and zip code
  • Phone numbers – Primary and secondary numbers.
  • The length of time you have lived at your current residence
  • The length of time you have lived at your previous residence
  • Email address – Sometimes optional, but most financial institutions are going paperless and will insist on providing email address for future communication
  • PAN to check your credit history
  • Aadhaar number for personal verification

Indicate your employment history –

The issuer will ask you for your employment history. The information you must provide usually includes:

  • Name of the employer
  • Length of employment
  • Your position at work
  • Type of business
  • Address and phone number of the work place

You do not necessarily need a full-time job to get a credit card approved if you show the possibility of repaying the amount from other sources.

Provide your financial information – 100% accuracy of your financial information is important, otherwise your application may be rejected. This information helps the issuer to ensure the stability of your income and your eligibility to benefit from the line of credit.

Examine the application carefully and make sure that the information you have provided is not divergent. After reviewing it, submit the application to the financial institution.

 

3. Required documents for a credit card –

The submission of certain important documents is necessary to verify the details you have provided. The submitted documents are then sent for verification to establish the legitimacy of the applicant’s credentials. Traditionally, the applicant used to go to the bank to submit the necessary documents for the credit card application, but the process is now more efficient and the field agent goes to your home to retrieve the documents.

Required documents for employees –

Proof of identity-

Voter ID card
PAN card
Passport
Aadhaar Card
Ration card with photo of the applicant
Driver’s license
Photo ID issued by central government, state government or any public sector company
A certificate issued by a duly certified bank, containing the applicant’s picture and the bank number
Central Government Health Plan Map
Copy of the applicant’s pensioner’s card
Valid passport (copy of name, addition, photo pages)

Proof of address-

Electricity invoices
Fixed network connection bill
Invoices for broadband connection
Voter ID card containing a photo
Aadhaar Card
Passport
Spouse’s passport
Bank account statements
Postal account booklet containing the applicant’s address
Last order on the tax assessment of the property
Driver’s license
Property Registration Documents
Proof of income-

Bank statement for the last 3 to 6 months (salary / income credited). *
Copies of the tax return
Salary Slip for the last 3 to 6 months *
* Varies from bank to bank

Documents required for self-employed –

Proof of identity-

Voter ID card
Passport
Aadhaar Card
Ration card with photo of the applicant
Driver’s license
Photo ID issued by central government, state government or any public sector company
A certificate issued by a duly certified bank, containing the applicant’s photo and bank number
License of the arm
Central Government Health Plan Map
Copy of the applicant’s pensioner’s card
Valid passport (copy of name, addition, photo pages)

Proof of Residence-

  • Electricity Bills
  • Landline connection Bills
  • Bills for Broadband connection
  • Voter ID card containing photograph
  • Aadhaar card
  • Passport
  • Passport of spouse
  • Statements of Bank Account
  • Statements of Credit Card
  • Passbook of Post office account containing applicant’s address
  • Latest order on tax assessment for property
  • Domicile certificate allotted by government
  • Driving license
  • Allotment letter of accommodation issued by Central or State Government of not more than three years old
  • Property Registration Documents

Proof of Income-

  • Audited financials for the last two years
  • Latest 6 months statement
  • Proof of continuity of Business
  • Copies of Income Tax Returns

Credit Card documents required for students – 

Proof of Identity

  • Voter’s ID card
  • Passport
  • Aadhaar card
  • Driving License
  • PAN card

Proof of Residence

  • Ration card
  • Passport
  • Driving licence
  • Telephone bill
  • Voter ID

Proof of Age

  • Tenth standard school certificate
  • Birth certificate
  • Passport
  • Voter ID card

Proof of Enrolment

  • Admission slip
  • College Identity card
  • Study certificate from the college or university

How long does it take to be approved for a credit card?

It takes 15 to 20 minutes to complete an online application form, but financial institutions take the time to review and approve it. It takes about 10 days from the day you asked for the credit card. Your credit card application has two consequences: it is accepted or refused. If the application is accepted, the card will be sent within two weeks of approval. If your application is denied, you must read the reasons in the rejection letter and try not to repeat the errors while completing your second application form.

Question And Answer Regarding Credit Card

How does a grace period work?

One of the many benefits of using a credit card is that you basically get an interest free loan and a grace period of 21 and 25 days. Here’s how it works: Suppose you have a credit card payment period from January 5th to February 4th, with a deadline of March 1st. Any purchases made during this period may be made without interest until the payment due date. However, if you do not pay your balance in full by March 1st, you will have to pay interest on your average daily balance.

 

How credit card interest is calculated

Many people think that credit card interest is calculated on the remaining balance after the payment deadline. However, if you do not pay the balance of your balance, you will earn interest on your average daily balance during the month.

Suppose the balance on your card is Rs. 1,000. On day 11 of accumulated interest, you pay Rs. 200. Then, on the 21st day of interest, you pay Rs. 350 more. Your average daily balance would be Rs.750.

If the annual percentage rate of the card is 20%, the periodic interest rate is 0.0548%. Your periodic interest rate is calculated by dividing your APR by 365. Multiply your average daily balance by the periodic interest rate and the number of days in the month to get the accrued interest for the month. In our case, that’s Rs. 12.33.

To avoid any interest, you must pay the new balance on your credit card statement each month. The minimum payment is enough to keep you in good standing, but paying interest is useless if you spend within your means.

Remember, if you take a cash advance, you may have to pay a higher interest rate and you will not receive a grace period. You may also have to pay a higher interest rate if you make a late payment or if you spend more than your credit limit. You can find these alternative rates on the website of the issuer of your card.

 

How minimum payments are determined

A minimum payment is the smallest amount of money you can pay each month without damaging your payment history or incurring late fees. There are different methods for calculating minimum payments, but here are the two main ones:

Percentage Method: Your issuer can calculate your minimum payment based on a percentage of your balance. This is usually between 1% and 3%. For example, if you have a balance of Rs. 2,000 and the minimum payment is 2% of your balance, you will have to pay a minimum of Rs. 40 to stay in good standing.

Percentage + Interest + Fee Method:

Your issuer may also receive a percentage of what you owe, plus interest and applicable fees. Say you have a balance of Rs 1,000 and an interest rate of 18% and you pay late. Your issuer may charge you a minimum payment equal to 1% of the balance (Rs. 10), accrued interest (Rs. 14.79) and late fees (Rs. 35). Your minimum payment in this case would be Rs. 59.79.
If your balance is relatively small, you may need to make a minimum payment, which usually ranges from Rs. 25 to Rs. 35 a month. But we always recommend paying your balance in full at the due date.

 

How credit cards affect your credit score

Credit cards can affect your credit score in several ways. Before going into details, take a look at the five factors that go into your CIBIL score, the most widely used rating model by lenders today:

Payment history (35%)
Use of credit (30%)
Duration of credit history (15%)
Types of accounts used (10%)
New credit (10%)

Using a credit card can affect your credit score in many ways, positively or negatively. You can positively impact the most important credit factor, the payment history, by making your payments on time, 100% of the time. A late payment by credit card will probably not be reported in a few days, but it can be reported to offices and hurt your score.

The use of credit, or the percentage of your credit limit that you use at any given time, is the second largest CIBIL score factor. We’ll see how to calculate this in the next section, but you should basically try to keep the balance of your debt below 30% of your credit limit.

The age of your most recent and oldest accounts, as well as the average length of all your credit accounts, is the length of your credit history. The longer it is, the better. You can influence this factor with a credit card by keeping your old accounts open and active. And of course, be patient, because creating a good credit score takes time.

The types of credit used refer to the combination of different types of credit accounts you have, such as student or car loans, or a mortgage loan. Diversity is better than one type of account, but this factor has a small influence on your CIBIL. Therefore, you should not go to great lengths to take interest-bearing debts.

When you apply for a new credit card, your score may take a hit. To combat this, avoid asking for multiple cards in a short period of time, especially if you have not accumulated your credit for a very long time.

 

How to calculate your credit usage

CIBIL pays attention to two different usage ratios: the use of your post and the overall usage. The usage of line items is the percentage of the limit you use for a specific card. For example, if you have a credit card with a limit of Rs 5,000 and your current balance is Rs 1,000, you have a 20% line item usage percentage on this card.

Overall usage is the total usage of all your cards. Say you have three credit cards:

Card A has a limit of Rs 500 and a balance of Rs 120
Card B has a limit of Rs 3,000 and a balance of Rs 200.
Card C has a limit of Rs 1,000 and a balance of Rs 800
Your total usage would be just under 25%, which is within acceptable limits.

Usage and overall utilization ratios are important for your CIBIL score. Keep both below 30% at all times to affect your credit favorably.

 

Where do the rewards come from

Many credit cards offer cash rewards or travel rewards on your purchases. These rewards come from interchange fees, or fees paid by a merchant’s bank to a customer’s bank when you use your credit card to make a purchase. Interchange fees vary, but are generally 2% or more, which is enough to cover reward rates for competitive rewards credit cards.

Some credit cards offer rewards of 5% or 6% on certain types of purchases. However, they tend to be capped at a certain amount in monthly, quarterly, or annual dollars. If your rewards seem a little too good to be true compared to conventional interchange fees, check out your benefits statement for more details on spending limits.

 

What is an EMV chip? Why is it important? And when it does not work

An EMV chip is a small chip embedded in your credit card that helps prevent fraud by generating a unique code every time the card is used. This can prevent the use of stolen transaction data to make fraudulent purchases. Traditional maps, on the other hand, contain only immutable data stored on a magnetic tape. However, the EMV chip only plays when the card is used physically for a transaction – for a purchase in a store, for example. Purchases made by phone or online do not involve the chip.

EMV chips have two main verification methods:

chip and signature and chip and PIN. With smart cards and signature cards, which are more popular in the United States, cardholders check their identity with a signature (although this requirement goes away in many cases). With smart and pin cards, which are more popular in Europe, cardholders enter a four to six digit number. (Many merchants abroad will not accept magnetic stripe cards only, so be sure to have a smart card when traveling abroad.

The rules that came into effect in October 2015 transfer responsibility for fraudulent credit card transactions to banks that do not issue EMV cards and to merchants that do not have EMV-compatible card terminals. Even in this case, it is still quite common to have to slide the magnetic strip of your card rather than insert the chip during a purchase.

 

What fees can you be charged

You may have to pay many credit card fees, but many of them are easily avoided. Here are the most common fees:

Annual Fees:

Annual fees are often charged for high-value reward cards, as well as for higher-risk consumer cards with lower credit ratings. You can avoid them by obtaining a card with no annual fee, but if your expenses are high enough, a credit card can earn you higher rewards.

Balance Transfer Fee:

Debit when you move a balance from one card to another, usually between 3% and 4%. Balance transfers are usually done by people with credit card debt who have found a balance transfer offer with a 0% APR. You should only pay a transfer fee if the interest you pay on your current card is greater than the balance transfer fee you will pay. And if you qualify, there are credit cards without a balance transfer fee.

Transaction fees abroad:

Billed each time you make a purchase abroad, usually between 3% and 4% of your purchase. To avoid these charges, you can get a credit card with no transaction fees abroad. If you are traveling abroad, you should definitely have a card without these fees and preferably with an EMV chip.

Late fees:

Charged if you do not pay at least the minimum payment on the scheduled date on your credit card statement, usually around Rs 35. Avoid this by always making your payments on time.

Overlimit Fee:

Billed if your balance exceeds your credit limit. You must register for these fees in accordance with the 2009 Credit Card Act. Remember that if you choose not to choose these fees, your purchases may be declined at the checkout if you exceed your limit.