Social security, bank account, and credit card numbers aren’t just data. In the wrong hands they can wipe out someone’s life savings, wreck their credit and cause
financial ruin. I thought of writing this article as I was a part of Credit Card industry and learnt and heard from customers how their life has been destroyed or is currently in a mess just because they started using a credit card. In India, many people are still to understand or hear about this credit facility offered by financial institutions but this product if used wisely can be a blessing but if a little careless can really tax you out completely.
As of March 2016, the credit card penetration in India is 24.5 Million, huge number isn't it, but only a few percentage of this number will be transactors (cardholders who make full payment on their credit cards on or before the due date) and more than
80% will be revolvers (cardholders who make less than the full payment on their credit cards on or before the due date. Lets understand why is it risky.
What is so special about a credit card that people want to use it more?
Credit card provides credit facilities that you can swipe your card at any merchant who gives that option, buy the product, use the product but pay only after some time. What is this sometime? Well, sometime means after 50 days or 30 days or 20 days. Confused with the no. of days, let me explain.
Example:
Ms. Hema purchased a washing machine from Samsung showroom on 25th October and made the full payment for the product by credit card of XYZ Bank. Her credit card billing date is 15th of every month and the due date given by the XYZ Bank is 25 days after the bill generation date. Lets work it out now.
Purchase date is 25th October.
Billing date is 15th of every month, so now she will be billed for it only on 15th November.
She gets the bill with a due date mentioned as 10th December {25 days from 15th November (bill generation date)}
In the above example if Ms. Hema pays the full money as per her bill before 10th December she is not charged a single penny extra. (Amazing right) - So here she got a credit period of 45 days to pay for her refrigerator. If she had purchased the same on 16th October which is 1 day after her billing date (remember her bill is 15th of every month) so she would have got credit period of 55 days. (Almost 2 months credit period to pay your product).
Well, credit cards are useful in such regards, quick payment, EMI's available, offers provided by the bank as well as merchants for specific cardholders and lots more. Hence if your a smart user and shopper credit card would be a friend in need. But if you show a slight lag in your enthusiasm to be a smart shopper then you have dug your grave, many come out after a struggle but much more of them get sucked into the bottomless pit. As I told you before if you pay on time as demanded by the bank (full payment as per bill before due date) then you are safe and can sleep in peace, the problem begins when you pay less than the full amount. There is a concept of Minimum Payment which can be 5% or 10% of the full payment as per bill (varies with banks or institutions). Now, the bank gives you an option to pay a small amount to avoid hassle and you can continue using your card to the credit line given by the bank which is the Minimum Payment. Here is the catch for these companies, once you start paying the minimum payment they charge you with interest which is high (approx. 38% to 40% annually). So basically if you pay anything less than the full payment mentioned on the bill you will be charged interest for the whole amount as per the bill from the day of purchase (Interesting isn't it). Once you start having balance left to be paid from the previous bill you are tagged as a revolver and the interest accumulates until full payment is made on the card. What else can go wrong?
Late payments - High late payment fees (In India many banks have different penalty amount depending on the amount to be paid)
Overlimit Fees - Credit card comes with a certain credit limit assigned by the bank for use (For Eg. Rs. 100000, now if you exceed knowingly or unblinkingly and swipe your card and reach the limit of Rs. 105000 and if the transaction goes through you are likely to get charged with Overlimit fees)
Annual Fees - Many cards come with Annual Fees, while some are free of the annual charges (Depending on the facilities on the card, you might get charges anywhere from Rs.499 to Rs. 2999+ as annual fess)
Insurance charges - Credit cards are likely to have pre-allotted facility of Insurance cover on the card (Credit card protection, credit shield, purchase protection, travel insurance), you might not know about these charges as they are generally not mentioned by the sales representatives. This information will be mentioned on the credit card application form and in fine prints.
Returned Cheque Fee - If you make payment by cheque and if the same is returned for insufficient funds or any other reasons the credit card company will charge you a cheque returned fee.
Foreign Transaction Mark Up - If you swipe your home country credit card while travelling to any other country, you will be charged with a foreign transaction mark up charge (for eg. 3.50%) for every swipe along with the foreign exchange charges (Forex).
Card Replacement Fee - If your card is lost or stolen and you want to replace the card, card replacement fee will be charged.
Cash Withdrawal Charges - Credit card is good for purchases, however you also have an option to withdraw cash from any ATM using your credit card. If ever you withdraw cash from the Credit card your interest is calculated on a daily basis and only will stop once you clear the full payment on the card and make the card outstanding Rs. 0. (Recommend readers to never use you credit card for cash withdrawal)
There are few other charges depending on card to card and from company to company, like fuel surcharge fee, railway surcharge fee, duplicate bill charges, cash payment at branch fee and few others.
Is that All? Well the answer is NO. How else can you be trapped into paying an amount you never used on the credit card. Information theft, if in case you loose your card and someone else uses the same, unless you inform it to the authorities immediately that your card is being used and is not authorized by you, you might be forced to pay the amount on the card if you are not able to prove the claim. There is an investigation process, but if it does not turn in your favour you are liable to pay the charges on our bill and if you do not pay the same, you will be charged with the interest charges, late fees, overlimit in case card limit was exhausted etc.
How to be Safe?
1) Keep your mobile number updated where you will get messages of transactions done on your card. if ever you change your number inform the bank immediately.
2) Do not share your card pin with anyone and also do not write it on the back of your card.
3) Restaurants ensure you enter the PIN yourself and not give it to the attender or the cashier and always remember to take back the card.
4) In case you loose your wallet or card inform the banks immediately and get the card blocked and confirm the last transaction made on the card.
5) Online transactions should always be done on home network and not on public network.
6) Ensure you do not make purchases on unknown websites as your card details get stored and you might see your card balance getting drained and also ensure you check the website payment terms and conditions carefully as you might see same charges repeated monthly (auto subscription)
7) Always ensure you have enough credit balance available on your card by the end of the billing period as there is possibility you will go Overlimit once bank charges you with their charges (Annual fees, late payment fees, interest charges etc.) Even if you go overlimit due to bank charges, you will still be charged with overlimit fees.
8) Use your card only if you salary is good enough to pay the expense by the due date.
9) Always try and make full payments as per your bill atleast 2 days prior to the due date to avoid being late.
10) Read the application form carefully before signing and gain as much as information possible prior to signing up.
11) Always check your bill as soon as you receive it and if you see any charges which you are skeptical about call the customer care and gain information.
12) If your transaction is declined, ensure you keep the decline receipt atleast until the bill is generated to confirm the charges are not duplicated.
13) Do not take loans on your credit card balance, this might turn out to be risky at a later stage.
14) Credit card facilities and charges change from time to time, ensure you take the card knowing this fact.
15) Before using any facility or discount on the card ensure you call and confirm if the facility is still available or the offer is still running.
16) Do not hold more than one card at the time. (More limit, more temptation, more trouble)
17) USE YOUR CARD ONLY IF REQUIRED AND NOT OTHERWISE.
These are the basic points to remember if you are a credit card holder. Following these points can ensure you enjoy this financial product as lots of discounts and offers are given by merchants if you have a credit card.
financial ruin. I thought of writing this article as I was a part of Credit Card industry and learnt and heard from customers how their life has been destroyed or is currently in a mess just because they started using a credit card. In India, many people are still to understand or hear about this credit facility offered by financial institutions but this product if used wisely can be a blessing but if a little careless can really tax you out completely.
As of March 2016, the credit card penetration in India is 24.5 Million, huge number isn't it, but only a few percentage of this number will be transactors (cardholders who make full payment on their credit cards on or before the due date) and more than80% will be revolvers (cardholders who make less than the full payment on their credit cards on or before the due date. Lets understand why is it risky.
What is so special about a credit card that people want to use it more?
Credit card provides credit facilities that you can swipe your card at any merchant who gives that option, buy the product, use the product but pay only after some time. What is this sometime? Well, sometime means after 50 days or 30 days or 20 days. Confused with the no. of days, let me explain.
Example:
Ms. Hema purchased a washing machine from Samsung showroom on 25th October and made the full payment for the product by credit card of XYZ Bank. Her credit card billing date is 15th of every month and the due date given by the XYZ Bank is 25 days after the bill generation date. Lets work it out now.
Purchase date is 25th October.
Billing date is 15th of every month, so now she will be billed for it only on 15th November.
She gets the bill with a due date mentioned as 10th December {25 days from 15th November (bill generation date)}
In the above example if Ms. Hema pays the full money as per her bill before 10th December she is not charged a single penny extra. (Amazing right) - So here she got a credit period of 45 days to pay for her refrigerator. If she had purchased the same on 16th October which is 1 day after her billing date (remember her bill is 15th of every month) so she would have got credit period of 55 days. (Almost 2 months credit period to pay your product).
Well, credit cards are useful in such regards, quick payment, EMI's available, offers provided by the bank as well as merchants for specific cardholders and lots more. Hence if your a smart user and shopper credit card would be a friend in need. But if you show a slight lag in your enthusiasm to be a smart shopper then you have dug your grave, many come out after a struggle but much more of them get sucked into the bottomless pit. As I told you before if you pay on time as demanded by the bank (full payment as per bill before due date) then you are safe and can sleep in peace, the problem begins when you pay less than the full amount. There is a concept of Minimum Payment which can be 5% or 10% of the full payment as per bill (varies with banks or institutions). Now, the bank gives you an option to pay a small amount to avoid hassle and you can continue using your card to the credit line given by the bank which is the Minimum Payment. Here is the catch for these companies, once you start paying the minimum payment they charge you with interest which is high (approx. 38% to 40% annually). So basically if you pay anything less than the full payment mentioned on the bill you will be charged interest for the whole amount as per the bill from the day of purchase (Interesting isn't it). Once you start having balance left to be paid from the previous bill you are tagged as a revolver and the interest accumulates until full payment is made on the card. What else can go wrong?Late payments - High late payment fees (In India many banks have different penalty amount depending on the amount to be paid)
Overlimit Fees - Credit card comes with a certain credit limit assigned by the bank for use (For Eg. Rs. 100000, now if you exceed knowingly or unblinkingly and swipe your card and reach the limit of Rs. 105000 and if the transaction goes through you are likely to get charged with Overlimit fees)
Annual Fees - Many cards come with Annual Fees, while some are free of the annual charges (Depending on the facilities on the card, you might get charges anywhere from Rs.499 to Rs. 2999+ as annual fess)
Insurance charges - Credit cards are likely to have pre-allotted facility of Insurance cover on the card (Credit card protection, credit shield, purchase protection, travel insurance), you might not know about these charges as they are generally not mentioned by the sales representatives. This information will be mentioned on the credit card application form and in fine prints.
Returned Cheque Fee - If you make payment by cheque and if the same is returned for insufficient funds or any other reasons the credit card company will charge you a cheque returned fee.
Foreign Transaction Mark Up - If you swipe your home country credit card while travelling to any other country, you will be charged with a foreign transaction mark up charge (for eg. 3.50%) for every swipe along with the foreign exchange charges (Forex).
Card Replacement Fee - If your card is lost or stolen and you want to replace the card, card replacement fee will be charged.
Cash Withdrawal Charges - Credit card is good for purchases, however you also have an option to withdraw cash from any ATM using your credit card. If ever you withdraw cash from the Credit card your interest is calculated on a daily basis and only will stop once you clear the full payment on the card and make the card outstanding Rs. 0. (Recommend readers to never use you credit card for cash withdrawal)
There are few other charges depending on card to card and from company to company, like fuel surcharge fee, railway surcharge fee, duplicate bill charges, cash payment at branch fee and few others.
Is that All? Well the answer is NO. How else can you be trapped into paying an amount you never used on the credit card. Information theft, if in case you loose your card and someone else uses the same, unless you inform it to the authorities immediately that your card is being used and is not authorized by you, you might be forced to pay the amount on the card if you are not able to prove the claim. There is an investigation process, but if it does not turn in your favour you are liable to pay the charges on our bill and if you do not pay the same, you will be charged with the interest charges, late fees, overlimit in case card limit was exhausted etc.
How to be Safe?
1) Keep your mobile number updated where you will get messages of transactions done on your card. if ever you change your number inform the bank immediately.
2) Do not share your card pin with anyone and also do not write it on the back of your card.
3) Restaurants ensure you enter the PIN yourself and not give it to the attender or the cashier and always remember to take back the card.
4) In case you loose your wallet or card inform the banks immediately and get the card blocked and confirm the last transaction made on the card.
5) Online transactions should always be done on home network and not on public network.
6) Ensure you do not make purchases on unknown websites as your card details get stored and you might see your card balance getting drained and also ensure you check the website payment terms and conditions carefully as you might see same charges repeated monthly (auto subscription)
7) Always ensure you have enough credit balance available on your card by the end of the billing period as there is possibility you will go Overlimit once bank charges you with their charges (Annual fees, late payment fees, interest charges etc.) Even if you go overlimit due to bank charges, you will still be charged with overlimit fees.
8) Use your card only if you salary is good enough to pay the expense by the due date.
9) Always try and make full payments as per your bill atleast 2 days prior to the due date to avoid being late.
10) Read the application form carefully before signing and gain as much as information possible prior to signing up.
11) Always check your bill as soon as you receive it and if you see any charges which you are skeptical about call the customer care and gain information.
12) If your transaction is declined, ensure you keep the decline receipt atleast until the bill is generated to confirm the charges are not duplicated.
13) Do not take loans on your credit card balance, this might turn out to be risky at a later stage.
14) Credit card facilities and charges change from time to time, ensure you take the card knowing this fact.
15) Before using any facility or discount on the card ensure you call and confirm if the facility is still available or the offer is still running.
16) Do not hold more than one card at the time. (More limit, more temptation, more trouble)
17) USE YOUR CARD ONLY IF REQUIRED AND NOT OTHERWISE.
These are the basic points to remember if you are a credit card holder. Following these points can ensure you enjoy this financial product as lots of discounts and offers are given by merchants if you have a credit card.
