What is a credit card and how does it work in India?

A credit card is a financial tool that allows you to borrow money from a bank or a financial institution to make purchases, pay bills, or withdraw cash. It is a practical substitute for carrying cash. In India, you normally need to be at least 18 years old and to have a reliable source of income in order to obtain a credit card. Here’s how it works:    

Application Process:     

You need to apply with a bank or a credit card provider by filling out the application form, providing the necessary documents and submitting it for review.    

Credit Limit:     

You are provided a credit limit by the bank after your application is accepted. This is the maximum amount of money you can spend using your credit card.     

Responsible Usage:     

When you use your credit card to make a purchase, the bank covers the initial cost, and you get a monthly statement that lists all of your transactions.     

Billing Cycle & Due Date:     

Your billing cycle is usually a one-month period during which your transactions are recorded and sent to you as a bank statement. It includes the total amount you owe and the due date by which you need to make the payment.     

Repayment Options:     

You have two payment options: the minimal amount due, which is only a small portion of the entire debt due, or paying the whole outstanding balance to avoid interest costs.      

Interest and Fees:     

If you don't pay the full outstanding balance by the due date, the bank will charge you interest on the remaining amount. Be mindful of any additional expenses connected to your credit card, such as yearly fees, joining fees, or other costs.    

Credit Score Impact:     

Banks evaluate your creditworthiness for upcoming loan or credit application based on your credit score, which is a numerical representation of your creditworthiness. Your credit score is influenced by how you use credit cards and how you handle payments.     

Keep in mind that if used carefully, a credit card may be a beneficial financial instrument. To avoid getting into debt, it's crucial to stick to a budget, keep track of your spending, and make payments on schedule.