In this article we are going to talk about the what are the things to know before getting a credit card. Bank and many things related to it can be a little hard to understand. If you have not been to a bank ever in your life, it is worse with you. Most of us are scared to even set a foot inside a bank just because we are afraid that they are gonna make a fool out of us. A lot of banking stuff goes over our head while our dads are a pro in this stuff.
It has been so easy for us to use our dad’s credit as well debit cards without giving it a second thought and even our parents did not say anything to us while we were using it. But at that age, we didn’t really know about it so we got the pass ticket.
What are the things to know before getting a credit card?
But now that you are going to get your own credit card, it is high time that you get yourself a little informed about banks and their credit card facilities, if not about everything. As a beginner to getting a new credit card you should be aware of everything that is a credit card because, it can either be a blessing or a curse and to be able to use it correctly it’s important to know about it.
First things first, you should know what actually is a credit card.
1. What is a Credit Card?
A Credit Card is a card made of plastic, but holds much more value than that. It is issued to you by a bank, society or building, allowing the holder to purchase goods and services on credit. They have a unique number attached to it and allows you to purchase anything without cash. Also, it is the most common type of electronic payment.
In easy words, it is a kind of loan provided to you by the bank that you have to pay off in a limited time period and if you fail to do so, there are consequences. And it is very different from your debit card. People mostly get confused between the two.
A credit card is a loan that a bank provides the holder and you have to pay off whatever amount you used but a debit card is your own money that is in your account and when you use it, the money is deducted from your account.
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2. How do you get it?
Credit card is a card that you can get in different ways, that is, you don’t always have to ask for it to get it. There are three ways to get a credit card and those are,
- The obvious one is the way that you want it and you ask your bank to provide for it. This when your bank checks your background such as your history of income tax returns and your other documents such as aadhar cards, address proof etc.
- The next is the one where a bank finds you to be cibil free (that is, you are not found to be a cibil defaulter) and if they find you as someone who pays your bills and interests on time, they offer you their credit card as a reward for your loyalty.
- The last one is when you request some kind of personal loan. This is when the bank may or may not offer you a credit card depending from bank to bank and many other things.
These are the ways you can get a credit card from your bank.
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3. Cibil defaulter
Now, you should be aware of all of the terms and definitions of the said terms before you even think of getting a credit card. This is because, if you know the related terms and what they mean, it will be easier to use the card without any tensions or doubts. Also, being aware of such terms will help you in your real life in future too.
Cibil is a credit rating agency that keeps the record of defaulter who had failed to repay their credit. This agency keeps track of your credit score, that is, the times you were not able to pay off your credit. A bank always cross checks your credit score with the cibil agency and if you have a low credit score they reject your request to provide you with a credit card.
4. Annual fee
A credit card is not something you get free of cost and comes with an annual cost. The cost depends from bank to bank. Although, in many cases you can ask for discounts or in many situations they offer it to you free of cost. If it is offered to you absolutely free of cost, then you won’t face annual fees problems. But if it was discounted or you are to pay it in full amount there could be some problems that you might face if you fail to pay the fees. That is, they give you a time period for you to pay off your amount and if you are not able to pay it then the bank might decrease the amount but you have to pay it along with a specific interest amount.
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5. Minimum limit
The next point that you should know about credit cards is that no bank provides you with a high amount in your first credit card. If not every, most of the banks provide you with a minimum limit in your credit card and this limit could depend on a number of things such as your salary etc. This limit can be increased by the bank if you are able to repay regularly without any default. For example, your minimum limit may start from twenty bucks and after two years it may get increased to fifty bucks.
This step is taken by the bank because a beginner could get a little out of hand with such a high amount in their pockets. They might use it without thinking but then fail to repay such a high amount.
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6. Interest rate
If, unfortunately, you fail to pay the amount, the bank lowers the amount for you which might sound too good at first but then they ask you to pay that amount with a specific interest rate. You might be thinking, ‘ what is so bad with paying interests? ‘. You should know that the interest rate on a credit card is more costly than any other interest rate. Mostly the interest rate may be 28 to 30%. Therefore, paying the interest on a credit card could be more of a problem than paying the actual amount.
7. Late fee
If you fail to pay back your credit amount on time then,
- You get asked to pay interest on the amount which is very high.
- If you fail to pay the interest as well as the amount, your credit card might get ceased and your name is added in the cibil defaulter list which means that you will not be provided with any loans in your future because of the low credit score.
8. Can’t pay in cash
The payments for credit cards are not allowed in cash. This means that you are not allowed to pay in cash for anything such as interest on credit card, annual fee, late fee or any other charges.
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9. Loyalty Rewards
A credit card holder who is able to pay off their credit amount on time are known to be to loyals and are provided with a number of rewards. What reward you get could depend from bank to bank. There could be a travel reward , that is, a discount on your vacation or an increase in your credit limit.
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10. Extra charges
There are a number of charges that come along with a credit card. You should be aware of various extra charges that you might have to pay, therefore, compare and get more and more information about the credit card and the bank you are thinking of getting it from. Compare different banks and the charges they are adding in their credit card.