Financial literacy and more
All about credit and debit cards
An online transaction will not have physical access of the credit card.
The details of the credit card have to be entered online.
This along with the additional security feature of a password or the one time password is matched with the records.
Here the credit card details becomes the information that will approve the payment.
This is the reason why one should keep the card details secret otherwise they can be misused.
Every credit card has some information stored on it which includes the limit available,card details etc
This information is accessed by the machine that is used for swiping the card.
The machine verifies the information and then it approves the payment,
When the payment is approved the transaction is cleared.
If there is some problem in terms of a mismatch then the transaction is declined,
There is a billing cycle for a credit card which is usually monthly in nature.
The spends for a month are taken together and then a bill is generated for the total amount spent less any payments made.
The month is not always a calendar month in terms of dates but it depends on the policies of a bank.
The customers billing cycle could be from the 2nd of one month to the 1st of the next month or it could be from 16th of one month to the 15th of the next month or even 24th of one month to the 23rd of the next month.
This period remains constant and every month the bill would be generated for these specific dates.
There are times when the customer might find that their credit card limit is low.
They might need a higher limit to make several expenses using their credit card.
In such a situation they can apply to the bank to raise their credit limit.
The bank would normally ask for proof of income in the form of a salary slip or income tax returns when they review the application.
Once the bank is satisfied about the ability to repay a higher amount it would raise the credit limit.
The bank usually does not raise the credit limit on its own.
Even if the bank wants to raise the credit limit on the credit card then it has to offer the higher limit to the customer who then has to accept the offer.
The bank can take permission from the customer to review the credit limit periodically like six months or one year.
If in this review the bank finds that the credit limit should be raise it will inform the customer about the higher limit being offered.
The customer would still have the option of turning down the higher limit and continuing with the existing limit.
A lot of people first get a credit card when they start their jobs or career and at this time their income is low.
This leads to the initial limit being sanctioned by the bank to be a small figure.
The bank also might not have any experience in dealing with a customer which could lead it to keep the limit lower to reduce its risk.
The credit score for a new customer might either not exist or it could be low which leads to a lower limit.
The initial amount is just the starting point and this can rise over a period of time.
The credit limit is the amount that can be spent using the credit card.
This limit is based on the income of the individual and their ability to repay the amount.
This is the maximum amount that a person can have outstanding on the card.
For example if the credit limit on a card is Rs 1 lakh and the person has spent Rs 60,000 already then the additional amount spent cannot be more than Rs 40,000.
The moment some amount is repaid on the credit card the credit limit gets freed up again which can be used for further spends.
An amount spent using a credit card has to be paid back to the bank.
The bank will send you a credit card statement every month.
This will have a repayment date which is usually another 15-20 days.
This time period is not very long and is a maximum of around 45-50 days.
Since this is not a very long period the credit card is considered a short term borrowing facility.
A credit card is a piece of plastic that actually allows you to use a bank’s money for a short period of time.
The name itself is an indication that the bank is giving you some amount of money to use.
This amount is not a gift so you have to pay back the amount that is spent using a credit card.
The amount has to be paid back usually within 15-20 days of the end of the credit cycle of the card.
If the amount is not paid back by the due date then the interest meter would start.