Credit cards: Know the finer details of your credit card

By: |
June 04, 2021 2:15 AM

Many credit cards also come with the facility of converting eligible expenses post-purchase into EMIs to make them more affordable

Your combined monthly card expenses, including such EMIs, should ideally stay under 30% of your card’s total credit limit to minimise adverse impact on your credit score.

Credit cards not only allow us to make desired expenses even if there are temporary liquidity issues but also ensure we maximise the value of those expenses with benefits like cashback, reward points, special discounts, etc., at no extra cost if we clear our total outstanding in full on time during every billing cycle.
While many of you could be using this payment tool for a while now, there are still a few important credit card facts that you may not be aware of. Let’s discuss some of these to help you make informed decisions.

Credit card against an FD
It is a fact that a bank does not offer credit cards to all its customers—they do so to only those customers who meet their eligibility requirements pertaining to minimum income, credit score, type of occupation, etc. However, if you don’t meet all the eligibility criteria, you can approach your bank requesting them to extend a secured credit card against your fixed deposits. Banks normally allow credit cards with limits up to 90% of the FD value subject to terms and conditions. However, if you default on your credit card dues, the bank has the right to recover them after liquidating the collateralised FD.

Credit card-linked pre-approved loan
Banks often extend pre-approved loan offers to their selected credit card customers. These unsecured loans could involve interest rates of 12% to 30% p.a., their EMIs get added to the total monthly card dues and are usually linked to the card’s credit limit. However, owing to their pre-approved nature, such loans could be disbursed quickly making them great borrowing tools during any kind of financial emergency. That said, you’ll be well-advised to read the loan fine-print carefully, assess its affordability and ensure your balance credit limit (after such a loan is sanctioned out of it) would be enough to accommodate your other card spending requirements before signing up for a credit card-linked pre-approved loan.

Zero annual fee credit cards
While choosing a new credit card, most of us tend to gravitate towards zero annual fee variants for obvious reasons. However, the fact remains that often these zero annual fee cards are the most basic variants with only a few benefits while cards that do charge annual fees come with premium perks and privileges like complimentary travel insurance, enhanced rewards programmes, special discounts at reputed hotel and restaurant chains and select e-commerce websites, etc. When used smartly, the value proposition of the rewards of such cards could easily exceed the membership charges.

Expense broken into EMIs
Most of you might be aware that big-ticket purchases like gadgets, appliances and furniture from select outlets made through credit cards could be converted to EMIs at the time of purchase. However, did you know that many cards also come with the facility of converting eligible expenses (post-purchase) into EMIs to make them more affordable? This is a really helpful feature, but users would be well-advised to get complete clarity about applicable charges, if any, before availing the EMI options. Most importantly, ensure you clear your dues in full on time to avoid additional penalties. Your combined monthly card expenses, including such EMIs, should ideally stay under 30% of your card’s total credit limit to minimise adverse impact on your credit score.

Credit limit
Banks ascertain the applicable credit limit linked to every credit card account based on their evaluation of the user’s creditworthiness and income. So, if you think your card credit limit is low, you can reach out to your bank requesting them to increase it—however, it will be your bank’s prerogative to make the final decision. That being said, having a high credit limit doesn’t mean a licence to spend carelessly using your credit card. You must use your card responsibly to ensure you clear your dues in full every month.

The writer is CEO, BankBazaar.com

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