Credit Card Basics you should know about

Updated: Nov 29, 2018

So you heard a lot about credit cards, and you have seen people with their wallets full of credit cards or people in the store making payments with credit cards.

While some say it’s helpful, some say its trap. But in this digital age, Credit Card is no doubt an effective financial tool. It’s your skill or knowledge to make the most out of it.

Now, to know how to use the tool to enjoy its advantages rather than falling into the trap, read this brief overview of the credit cards.

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Credit card basics
Credit card basics you should know about

What is a credit card?

A credit card is a kind of financial account with which you use bank’s money instead of your own to spend on a product or service today, and over time, you repay the bank. Thus it helps to keep your own money available for emergency and other purposes. But at the same time, you often need to pay interest for using other’s money.

There are different types of credit cards like regular, premium, secured, corporate, women’s, airline and many others. Choose as per your convenience.

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The terms related to the credit card:

Credit Limit

In most cases, a credit card has a maximum balance at a point of time to spend on purchases. It includes purchases, cash advances, balance transfers, finance charges, and fees. If you cross the limit, you have to pay a fee or interest.


It is the total amount you owe at any given time including purchases, finance charges, and fees.

Grace Period

It is time you have to pay for your balance in full before any finance charge becomes applicable.


It is the annual percentage rate which is the interest rate on the balance you carry past the grace period.

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What does it cost?

Certain credit card fees include an annual fee, late fee, over-the-limit fee, and finance charge. But please note it’s in your hand how you will avoid the applicable fees.

How does it work?

When you swipe your credit cards to pay, your account is validated, and if the bank allows the purchase, the purchase amount gets added to your credit account. There is a billing cycle. Bank combines all your credit purchases done in a billing cycle and emails you billing statement showing how much you have to pay. You should know that there is involvement of many companies and even money exchanges with every swipe of your credit card. Merchants who accept credit cards, pay fees, and the issuing banks earn a part of this fee as revenue. Other than this, there are extra fees and interest fee depending on how and when you pay your bill.

How can you act smart?

Now it would be the best thing to make full payment by the due date. At least if you pay a minimum amount as set by the bank, you avoid extra fees. Do not forget interests that get added to your unpaid amount and that adds up quickly.

If you pay in full and on time, the bank considers you as a well-behaved customer and reports the same to other companies. Then these companies evaluate you as good borrowers and can get you financial advantages in the future.

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What are the benefits?

• Purchase with credit card ensures protection against fraud.

• You enjoy interest-free credit period.

• You get reward points, cash back, and air miles.

• You can use it across the world for foreign travel.

• It boosts your CIBIL score.


It is advisable that you should avoid overusing your credit card and borrow only as much as you can repay. Also, don’t forget to make your credit card payments timely else you may end up damaging your creditworthiness along with paying applicable late fees and additional interest.

Remember banks charge 3% to 5% monthly interest rate on your total outstanding amount which turns out to be as high as 36% - 45% on an annualized basis. It is even higher than a personal loan. So handle it wisely and Get your free credit report today

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