After demonetisation of high value currency notes, you might be thinking about shifting all or most of your transactions from cash to plastic and digital. Let’s take a deeper dive into credit card charges.
After demonetisation of high value currency notes, you might be thinking about shifting all or most of your transactions from cash to plastic and digital. With problems in withdrawing cash from ATMs and banks, it is a good time to explore alternative modes of payments. Credit cards, of course, have been around for decades, and are a very popular way of transacting online and offline.
However, you need to remember that credit cards aren’t free. Though many banks have waived off or reduced charges on point of sale (POS) and online transactions, there are many other charges that you must be aware of while using your card.
Apart from having so many charges, credit card transactions also impact your CIBIL score. Therefore, you must take care of its usage while switching to cashless transactions.
Let’s take a deeper dive into credit card charges:
No such thing as free credit
There are some credit cards that are free for lifetime, i.e., they have no annual fee. Such cards may seem free, but in reality their usage charges are higher than those of chargeable cards. A card’s annual maintenance fee could range anywhere between Rs. 300 and Rs. 5000 per annum. Some cards may even charge up to Rs. 10,000 for the first year and then lower the charges from the second year. Card companies often waive off this charge if the annual usage exceeds a fixed limit.
“Transactions through credit cards carry several charges. There is an interest-free period up to 40 to 50 days allowed by most credit card companies, after which the spent amount incurs 2% to 3.5% interest per month. The monthly interest may seem small. But annualised, it comes to 24% to 40% per annum, which is extremely high,” says Adhil Shetty, CEO, bankbazaar.com.
Once you start transacting heavily with your credit card, you may soon find soon your spending limit to be insufficient. You may sometime exceed the limit. Card companies levy penalties up to 2% to 2.5% on the amount utilized over the card limit.
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Every month, there is a fixed due day by which time you need to settle your minimum dues for the monthly usage of your credit card. If you do not pay the minimum due within the due date, depending on the total due amount you would be penalized as per the card’s terms and conditions. Credit card companies normally levy Rs. 100 to Rs. 500 if the due amount is less than Rs. 20,000 and up to Rs. 800 if the due amount is above Rs 20,000.
“You would definitely need to check the card statement intermittently, but remember: it may cost you money if you ask for a duplicate statement. Credit card companies charge somewhere around Rs 50 to Rs 200 for a duplicate statement. You can avoid this by keeping track of your card use by registering an online account with the card provider,” says Shetty.
If you use your credit card excessively, it may get damaged. For a replacement card, you may have to pay fee that could range between Rs. 200 and Rs. 400, depending on the card company.
Apart from the above-mentioned charges, credit cards also carry charges such as surcharge while paying for fuel (around 2.5% of the transaction or a fixed flat charge), service charge, foreign currency transaction charge, cheque bounce charges, ATM withdrawal transaction charge, and interest on cash withdrawal from an ATM.
|Charges related to Credit Cards|
|Annual Charge||Rs NIL* to Rs 10,000**|
|Late Payment Charge||Up to Rs 800|
|Interest Rate||2% to 3.5% per month|
|Over Limit Charge||2% to 2.5% of the excess amount used|
|Fuel Surcharge||2.5% of the transaction amount|
|Card reissuance charge||Rs 200 to Rs 400|
|Duplicate statement||Rs 50 to Rs 150|
|ATM transaction charges||Around 2.5% of the withdrawal|
|Reward Redemption Charge||Rs 100 to Rs 200|
|Other Charges||Cheque bounce charges, outstation cheque charges, Foreign currency transaction charges,|
* Depending on yearly transactions, annual charges are waived as per terms and conditions of card company
** The charge could be higher depending on card type and card company
Note: Data taken from websites of various credit card companies and reflects only an approximate range
Impact on CIBIL score
It is very important that you maintain strict financial discipline while using your credit card. Excessive use of credit cards could show that you are credit hungry and in regular requirement of short-term credit.
Credit utilization, therefore impacts your CIBIL score, which is important for getting a loan. “A higher credit utilization may bring your credit score down. To avoid a negative impact on your CIBIL score, always distribute your spending between more than one card. This will keep the credit utilization ratio (CUR) under control. Your CUR is the percent of your spending limit you are using. For example, if you have a limit of Rs. 100,000, try and spend not more than Rs. 20,000 a month so that your CUR remains around 20%, which is considered ideal from the point of view of your credit history,” informs Shetty.
While selecting a credit card, always check the various charges, interest rates, and read the terms and conditions very carefully. It is important to repay the due amount within the stipulated time to avoid interest and penalties.
Credit card usage can help you earn reward points, discounts, cash backs and also improve your CIBIL score if used with proper care. It is a good time to switch all your cash transactions to plastic or digital money. But do not forget to read your statements carefully to analyze your charges.