MyMoneyKarma: credit card

Showing posts with label credit card. Show all posts

Wednesday, June 9, 2021

Is Credit Card Better Than Salary Overdraft

Do you know which demographic lenders generally target? They target young salaried borrowers who are facing a temporary financial problem at the end of the month. And this happens more than you think. The thing with salaried individuals is that most don’t budget. And even when they do, expenses pile up suddenly. A vacation here, a family outing here, and medical bills there. All these pile up, and at the end of the month they have a cash crunch.

However, if you face a similar situation, you have several options: a credit card and a salary overdraft. To take a salary overdraft, there are certain criteria which differ from bank to bank. There are also certain things you need to watch out for before you take out a Bank Overdraft. You can get a loan for all occasions, of which a salary overdraft can save your life if the situation calls for it. It is considered to be the most convenient way to get emergency funds, and thus it is important to know how an OD or Overdraft on salary functions so that you can use one properly.

A salary overdraft is one type of Revolving Credit and, as the name suggests, you can get this money on your salary account. This works like a credit card. Like a credit card, a Salary Overdraft has an upper limit. You can withdraw a certain amount over and over again, provided you repay each time of course. As you can see, this is pretty useful.

Each bank has different parameters for determining the entire extent of such an overdraft. Typically, banks offer a credit line that is 3x of your current net monthly salary. Some banks, though, restrict the same to 80% or 90% of your salary or to their own fixed overdraft limit, whichever of these is lower.

For example, there are some banks which put a cap on the overdraft at Rs. 3 lakh to Rs. 5 lakh. Others allow a much smaller amount ranging from Rs. 1 lakh to Rs. 1.5 lakh, regardless of how much you earn. There are even banks that give micro loans ranging from Rs. 10000 to Rs. 25000. It all depends on their policies.

As for repayment, this varies from one bank to another too, but most of them give an automatic sweep facility which enables the amount payable to be auto-swept when there is sufficient balance available in the account. Understand that this service is given only to some salary holders depending on their credit history and eligibility factors. To get the OD facility or service, you need to apply through Net Banking. There will be some processing fees, which generally is charged only after the OD is sanctioned. If you want to revolve the credit for more than a year, there is an annual renewal fees.

One thing you should remember is that Overdraft facilities are quite expensive. Whether it is a question of a daily decreasing balance or a simple interest, the average rate of interest is around 1% to 3% a month or 12% to 30% a year! It gets even more expensive if you factor penalties and processing fees.

Unlike a credit card, it does not bring any benefits like reward points or exclusive benefits. Unless you need cash on an emergency basis, it is far better to get or use a credit card instead which at least gives you some benefits and at a much lower cost. With credit cards, you even get an interest-free period each month. This makes a credit card more cost-effective than a Bank Overdraft on salary.

Sunday, May 16, 2021

How do Credit Card Companies Make Money?

Ever wondered how credit card companies made their money? If you have and yet have not found the answer, you’re going to love this article.

Credit card companies make most of their money from credit card interest, transaction fees from merchant businesses, and the annual fees paid by cardholders. Even though there is a huge growth of Mobile Wallet apps and Fintech star-ups, many people still wonder if credit card companies still make enough money. Why are some credit cards interest-free while others hand an annual interest?

Which parties are involved in a Credit Card transaction?

Credit card holder and the card merchant: Both of these parties are a source of revenue.
Card issuing bank: This is the entity which issues the card in the first place. It gives a loan or a line of credit to the customer. The acquiring bank and the issuing bank share all liabilities in case of non-payment of loan.
Acquiring bank: It focuses on making payments to the concerned merchant. Acquiring banks keep in contact with merchants and request them to accept the concerned card.
Payment network: These include payment networks and payment gateways like Visa, MasterCard, American Express, and etc. The link is both acquiring and issuing banks. Such banks have a relationship with the payment networks, and not with one another.

So what happens when you use your credit card?

On using your credit card, the money is moved automatically and electronically through the card’s network to the merchant’s bank. The payment network ensures that the transaction is from the actual cardholder in order for you to be billed.
Sources of revenue for the card issuer bank

Interchange fees: Each time you use a credit card, the merchant gives a processing fee which is equal to the transaction’s percentage. Interchange is that part of the fee which is sent to the issuer bank through the payment network. This is around 1% and 4% of the actual transaction.
Late payment fees and revolving interest charges: You’ll be surprised to know how many users do not pay their credit card bills on time each month. Where do you thing the late fees and penalties go to? The bank that issues the card, of course! Late payment interest is from 1.75% to 4% per month.
Annual and renewal charges: Some cards have these charges, and they go to the issuer bank.
Foreign transaction fees: This goes to the issuer bank as well.

The Issuer bank also gets Cash Advance fees, Balance transfer fees, conversion of Outstanding EMIs to easy EMIs, revenue from reward points redemption, commission from 3rd party product sale, various marketing revenues, card replacement fees, additional card issuance fees, and more!
Revenue sources enjoyed by the Acquiring Bank

These are:

Acquirer fees: This is the commission taken from the MDR for the bank’s role in the payment settlement.
PoS terminals: These are given to merchants by banks at a cost. In India, the cost is between Rs. 8000 and Rs. 12000 for one terminal. This is the only one-time fee. After that, the merchant is charged for every transaction.
Merchant Settlement Cycle Interest: All the transactions carried out at a merchant PoS are settled by the Acquiring Bank. The money which remains with the bank is invested in bonds and short term investment funds for interest.

Revenue sources for the payment network

The payment network gets revenue when you make transactions too.

It earns from its:

Service revenues: This is earned from giving support services to financial institution clients for delivering Visa-branded payment solutions and products.
Data processing revenues: Payment networks get revenue for authorizing, settlements, clearing, and network access and for giving support services to facilitate information and transaction processing.
International transaction: Payment networks get revenue from here as well.

Thursday, May 13, 2021

How do Credit Card Companies Make Money?

Credit card companies make most of their money from credit card interest, transaction fees from merchant businesses, and the annual fees paid by cardholders. Even though there is a huge growth of Mobile Wallet apps and Fintech star-ups, many people still wonder if credit card companies still make enough money. Why are some credit cards interest-free while others hand an annual interest?

Which parties are involved in a Credit Card transaction?

Credit card holder and the card merchant: Both of these parties are a source of revenue.
Card issuing bank: This is the entity which issues the card in the first place. It gives a loan or a line of credit to the customer. The acquiring bank and the issuing bank share all liabilities in case of non-payment of loan.
Acquiring bank: It focuses on making payments to the concerned merchant. Acquiring banks keep in contact with merchants and request them to accept the concerned card.
Payment network: These include payment networks and payment gateways like Visa, MasterCard, American Express, and etc. The link is both acquiring and issuing banks. Such banks have a relationship with the payment networks, and not with one another.

So what happens when you use your credit card?

On using your credit card, the money is moved automatically and electronically through the card’s network to the merchant’s bank. The payment network ensures that the transaction is from the actual cardholder in order for you to be billed.

Sources of revenue for the card issuer bank

Interchange fees: Each time you use a credit card, the merchant gives a processing fee which is equal to the transaction’s percentage. Interchange is that part of the fee which is sent to the issuer bank through the payment network. This is around 1% and 4% of the actual transaction.
Late payment fees and revolving interest charges: You’ll be surprised to know how many users do not pay their credit card bills on time each month. Where do you thing the late fees and penalties go to? The bank that issues the card, of course! Late payment interest is from 1.75% to 4% per month.
Annual and renewal charges: Some cards have these charges, and they go to the issuer bank.
Foreign transaction fees: This goes to the issuer bank as well.

Revenue sources enjoyed by the Acquiring Bank

These are:

Acquirer fees: This is the commission taken from the MDR for the bank’s role in the payment settlement.
PoS terminals: These are given to merchants by banks at a cost. In India, the cost is between Rs. 8000 and Rs. 12000 for one terminal. This is the only one-time fee. After that, the merchant is charged for every transaction.
Merchant Settlement Cycle Interest: All the transactions carried out at a merchant PoS are settled by the Acquiring Bank. The money which remains with the bank is invested in bonds and short term investment funds for interest.

Revenue sources for the payment network

The payment network gets revenue when you make transactions too.

It earns from its:

Service revenues: This is earned from giving support services to financial institution clients for delivering Visa-branded payment solutions and products.
Data processing revenues: Payment networks get revenue for authorizing, settlements, clearing, and network access and for giving support services to facilitate information and transaction processing.
International transaction: Payment networks get revenue from here as well.

Friday, March 26, 2021

Credit Bureaus - What Do the Credit Bureaus Do?

Have you ever tried to find out your credit score? If yes, did you check your scores on different sites on the same day? If not, just try it once, and it is likely that you would experience something strange - you may get different scores on different websites.

Are you confused? Worry not. We are here to clear your confusion. Let's start off with the very concept of a credit score.

What Is a Credit Score?

A credit score is an indicator of an individual's financial stability. Whether you are applying for a loan or a credit card, this three-digit number carries a lot of significance. This numerical value is determined based on your financial (credit) history, and it depends on the following factors:

History of debt repayments
Total debt of the customer currently
Credit available to him/her

A credit score ranges between 300 and 850 or 900. If you have a high credit score, you will find it easier to get loans approved. You may also get better interest rates on loans.

What Is a Good Credit Score?

Usually, if the score is more than 700, it is considered to be a good credit score. The closer you are to the highest score (900), the higher the chance of approval for your loans. Given below are the industry-specific scores:

Poor - 300 to 579

Fair - 580 to 669

Good - 670 to 739

Very Good - 740 to 799

Excellent - 800 to 900

What is a Credit Bureau?

A credit bureau is a data analytics agency that researches and collects the credit history of an individual, generates the credit score, and sells it to banks, other financial institutions, and directly to customers as well.

Credit Bureaus use proprietary algorithms to calculate your score. Though this may vary marginally form one bureau to another, it is generally similar so as to maintain some semblance of uniformity.

How Do Credit Bureaus Get Your Information?

Aren't you intrigued about how these credit bureaus generate your credit score?

Financial institutions supply information about your credit dealings to credit bureaus. This information is in turn utilized to calculate a numerical score. Banks and other credit institutions regularly report to credit bureaus so that credit reports prepared for each individual is up to date.

Why Does Your Credit Score from Different Bureaus Vary?

Credit scores matter a lot to your financial well-being, especially while applying for credit cards or loans . There are a few reasons why your credit scores vary from bureau to bureau.

Each bureau has its own algorithm to generate these scores.
Lenders report credit information to the bureaus at different times, and hence, some financial information might not be updated with all bureaus simultaneously.
A credit bureau may store or display the same information in different ways.

How Many Credit Bureaus Generate Credit Scores?

The following are the four most popular and best credit monitoring services in India:

Equifax
Experian
TransUnion (CIBIL)
CRIF Highmark

Equifax

Established in 1899, Equifax is the oldest of all the credit bureaus, and is one of the largest credit bureaus in the USA. In India, it was licensed by the Reserve Bank of India (RBI) in 2010. The credit range is 300-900, 900 being the highest. A score of more than 700 is considered good.

The cost of the report is Rs.400 (excluding GST) for credit report and credit score. The credit score generated by Equifax is as good as the other bureaus. mymoneykarma provides you the Equifax credit score for free.

Experian

Headquartered in Dublin, Experian was established in 1996 and is a leading global information services company. RBI licensed it in 2010.

Experian initially offered a different score range but later on adopted the range of 300-900 as directed by the RBI. A credit score of 700 and above is considered good. The cost of the report is Rs.399 for credit report plus credit score.

TransUnion

TransUnion Limited was founded in the year 2000. It is India’s leading credit information company and is popularly known as CIBIL. The score ranges between 300-900. A good credit score would be 700 and above. The report costs about Rs.550 for credit report plus score.

CRIF Highmark

Highmark or High Mark Credit Information Services is another popular credit bureau in India that maintains record of every individual’s and organization’s credit information. Based in Mumbai, the Credit Information Company was founded in the year 2005.

Besides collecting credit information, it also offers credit reports and score to its members and individuals. It helps lenders and financial institutes gauge risk-profile of individuals and organizations before approving their loan applications.

The credit score ranges between 300-900. A good credit score would be 700 and above. The report costs about Rs.399 (including GST) for credit report + credit score.

All these credit bureaus provide online credit reports, delivering instantly once payment is made.

Thursday, March 18, 2021

Best Credit Card For Fuel Purchases In India

Hey there!

Are skyrocketing fuel prices burning a hole in your pocket?

Are you keeping aside a big stash of your monthly income for fuel expenses?

If your answer is yes, then we assume that you are here to find a solution. Let's begin the discussion then.

The solution lies in the credit cards that provide a waiver on fuel surcharge or let you use your rewards to pay for fuel expenses. Here, mymoneykarma has prepared a comprehensive list of the best credit cards that can help you in saving money:
ICICI HPCL Coral Credit Card (Visa)

Joining fee: Rs.199 + GST

Reward points: Two payback points on every Rs.100 spent (on retail purchases except fuel)

Reward points value: 2000 payback points = Rs. 500 spent on fuel

Exclusive benefits

Get 2.5% cashback (on minimum fuel transaction of Rs. 500)
Savings of 1% fuel surcharge on making purchases at HPCL pumps.
Enjoy Rs.100 discount on up to two movie tickets per month at www.bookmyshow.com
Minimum 15% savings on dining at over 800 restaurants.

ICICI Bank HPCL Coral Credit Card (Master)

Joining fee: Rs.199 + GST

Renewal fee: Rs.199 + GST

Reward points: Six payback points on every Rs.100 spent (all retail purchases except fuel)

Reward points value: 2000 payback points = Rs. 500 spent on fuel

Exclusive benefits of this card

Get 2.5% cashback (on minimum fuel transaction of ?500)
Savings of 1% fuel surcharge on making purchases at HPCL pumps.
Get Rs. 100 off on Zomato for orders of Rs. 250/- and above - Use this code while paying through your ICICI credit card: ZOMATO101
This offer is valid up to 5 times per user

Kotak Mahindra Delight Platinum Card

Joining fee: Rs. 2000 + GST

Renewal fee: Rs. 299 + GST

Reward points: You get rewards in the form of cashback

Exclusive benefits

Get 10% cashback on dining and movies after spending an amount of Rs.10,000 monthly on other categories.
Enjoy a 1% fuel surcharge waiver across all petrol pumps in India.
If your credit card is stolen, you get an insurance cover of Rs.1,25,000 against fraudulent usage for up to seven days of pre-reporting.
VisapayWave facility for one transaction of up to Rs. 2000 without entering a PIN.

Kotak Mahindra Solaris Platinum Credit Card

Joining fee: Rs. 500 + GST

Renewal fee: Rs.500 + GST

Reward points (RP): Earn up to 5X RP on every Rs.150 spent (online purchases)

Earn 2X RP for every Rs.150 on other retail spends.

Exclusive benefits

Fuel surcharge waived for transactions between Rs. 400 and Rs. 3500
Enjoy the railway surcharge waiver for bookings on IRCTC.

Bajaj Finserv RBL Bank Value Plus Supercard

Joining fee: Rs. 499 + GST

Renewal fee: Rs. 499 + GST

Welcome bonus: Gift vouchers redeemable on Flipkart, Shoppers Stop, MakeMyTrip, etc.

Exclusive benefits of this card

10% cashback on Ola/Uber/Fuel Purchases (up to Rs. 250 per month)
Get a fuel surcharge waiver up to Rs.100 per month.
The approximate value of benefits per annum: Rs. 6200+

A Complete Guide to Credit Card Basics - Learn the Basics of Credit Cards

When I was a newbie in the world of credit, I was quite apprehensive of credit cards. I had been warned about the infamous credit card debt. I had heard alarming stories of people suffering at the hands of credit card companies. I was scared to get myself a credit card.

Little did I know back then that credit cards come with an array of benefits as well! If you can learn the tricks of the trade, you could use credit cards to save money as well as build your credit score. However, you must learn to use them wisely to enjoy their benefits. If you use them irresponsibly, you will most definitely invite trouble. Therefore, it is better to understand how credit cards work before you sign up for this financial venture.

What is a Credit Card?

A credit card is basically a plastic card issued by a financial institution, which allows the cardholder to borrow funds from the issuer. Whenever you use your credit card for a purchase, you take a small loan from the card issuer. You have to repay the money within a preset date each month.

How Do Credit Cards Work?

When you wish to take a credit card, you approach a card-issuing company or a bank and submit an application. The lender refers to your credit report and your credit score to check if you are worthy of getting credit. If you qualify the requirements of the lender, a credit card is issued to you.

Once your application for a credit card is approved, the lender evaluates your financial health and accordingly sets a credit limit. Your credit limit is the maximum amount that you can borrow. Your credit report influences the range of your credit limit. As you use the credit card, the amount you spend is known as your credit card balance.

Each credit card has a billing cycle and a due date by which you must repay the money you owe to the lender. You could pay the balance in full or a portion of the balance as per the lender's policies. Payment networks like Visa, MasterCard, etc. oversee and process these credit transactions.

Paying off the balance in full ensures that you don't pay any interest on the borrowed amount; in case you decide to pay the minimum amount required, you should be prepared to pay a high interest as well.

All credit card issuers report your activities to credit bureaus. Credit bureaus are companies that prepare your credit report. TransUnion, Equifax, and Experian are the three most popular credit bureaus. These bureaus use a complex mathematical algorithm to evaluate your financial activities and assign you a credit score, which is a three-digit number, typically ranging from 350 to 800, which determines your creditworthiness.

A small financial mistake, such as forgetting to pay your credit card bills within the due date, can reduce your credit score.

Costs Involved in Owning a Credit Card

There are various fees and charges that come with credit card use. If you learn to spend and repay responsibly, you can evade some of these costs.

APR: APR stands for Annual Percentage Rate. There are different types of APRs - the normal APR applies to the balance that you carry forward after paying the minimum balance in every billing cycle. The penalty APR is imposed on your balance when you miss a payment.

Annual Subscription Fees: Some credit cards charge an annual fee, whereas some don't. You should pay an annual fee only when the card in question offers outstanding perks and benefits. If not, go for a credit card without annual fee.

Late Payment Fees: When you make a delay in repayment or fail to pay within the due date, the bank or the card issuer can impose a late fee on the balance due. These charges are generally quite high and vary from company to company.

Balance Transfer Fees: Balance transfer cards usually have a low rate of interest, but a few cards might ask you to pay a fee whenever you transfer a balance. You should check with the issuer before getting a balance transfer card.

Why You Should Get a Credit Card

First and foremost, credit cards help you build your credit history, which gives you access to more credit opportunities in the future.
Many cards give you sign-up bonuses or shopping vouchers.
Rewards programs give you many benefits such as cash back and point redemption.
Credit cards with a 0% or low-interest rate can come of use if you wish to make a high-value purchase.
Credit cards give you flexibility regarding payment. It is ideal to pay off the full balance; however, you have the option to repay the money over time as well.

Credit Card Vs Debit Card

When you use a debit card to make a purchase, you are essentially using your own money, whereas using a credit card for purchase means borrowing the amount from the lender. Hence, your debit card is linked to your savings account and it pulls money out of your account.

Both credit and debit cards have perks and reward point programs, but credit cards generally have more lucrative offers. Credit cards also have strong fraud protection policies which debit cards lack. Hence, using credit cards is actually much more safe and reliable than debit cards. Additionally, credit cards build your credit history, whereas debit cards don't.

Types of Credit Cards

Rewards cards

Many credit cards have reward programs, and they give you something in return for your purchases. 'Cash back cards' cards give money in return; 'airline credit cards' give airline miles or points which you can redeem for free flight tickets. Then there are 'travel cards', which you can use to pay for your travel expenses.

'Store credit cards' give loyalty points or discounts for shopping at particular stores. Although these cards offer a lot of tempting benefits, they are generally difficult to get. You would need a high credit score to get one, and they are ideal for people who pay their credit balance in full every month.

Low-Interest Cards

Instead of rewards, low-interest cards provide lower interest rates. If you are struggling to repay your balance in full every month, this could be a viable option for you as it doesn't impose a higher rate of interest on the balance that you carry. A few low-interest cards provide introductory offers of 0% interest for a limited time. You would need a good credit score to qualify for one of these.

Balance Transfer Cards

A balance transfer credit card comes in handy when you are in debt. It allows you to transfer a high-interest credit card balance to a new credit card that has a lower interest rate. You might find a few balance transfer cards which offer 0% introductory APR for a limited period. You can transfer your outstanding balances from multiple credit cards to a balance transfer card. It can streamline all your payments into a single payment, which is much easier to manage.

Secured Credit Card

These cards are designed for people who are looking to build their credit score but lack access to a regular (unsecured) credit card as they haven't yet established enough credit score. It is known as a ‘secured’ card because it is secured by some money that you have to deposit against the card's credit limit.

Secured credit cards can serve as a supportive start for someone without any credit history or for someone trying to rebuild their damaged credit history.

Wednesday, March 17, 2021

Best Credit Card In India With No Annual Fee - Top 5 Credit Cards in India

You may think that cards without a credit card annual fee are outright scams, or at least a way to siphon off your money by some obscure means. However, it is not so. There are many cards out there that charge no annual fee at all. As such, what is the point of getting a card with such an additional charge? Now that is a valid question.

Why Do Some Cards Have Credit Card Annual Fees?

There is a reason why there are annual fees charged on credit card usage. In most cases, these cards come with a lot of exclusive membership rewards. The perks more than make up for the annual fees, as the rewards are often of higher value.

The main reason why some of the credit cards offer big rewards in return for an annual fee is that these cards are for a specific section of the population. For instance, there are cards for frequent travelers, people who dine out a few times a month, and so on.

Customers who spend a lot on such credit cards generate much profit for the concerned credit card company or bank. This is why there are so many credit card offers vying to entice customers to get the card that matches their wishes and desires.

Generous and stellar rewards are furnished for those who know the best credit card usage tactics. However, such amazing offers cannot come for free, as the lenders have to find it profitable as well.

Many users who spend a considerable amount through their credit cards understand these benefits, and tend to use credit cards with annual fees. The rewards arise from two sources: signup bonus and the rewards produced from your spendings.
The Difference Between Credit Cards with an Annual Fee and Zero Annual Fee Credit Cards

As we said before, you would want to pay annual fees on a credit card only if its benefits outweigh the costs. The rewards need to be substantial. If not, credit cards with no annual fees are a far better choice.

The most significant advantage of zero yearly fee credit cards is that you can keep them active without any extra costs. Additionally, if you spend very less through such cards, your credit score will be improved due to the lower credit utilization ratio.

Some of the zero annual fee credit cards are HSBC Platinum Credit Card, ICICI Platinum Chip Card Visa, and Yes Bank Prosperity Reward Plus.
Facilities Provided by a Credit Card with an Annual Fee

If you are still on the fence, this section may help you to decide what kind of card best suits your needs. Expensive credit cards and those with annual charges may seem like a bad option, but the benefits are many.

Here are some of the benefits and facilities offered by credit cards with annual fees.

Spending rewards are more than the annual fee: When you spend and reach certain milestones, you become eligible for certain sizable rewards. These can be in the form of valuable reward points, or some other way. You can, of course, redeem these points for future purchases.
You get a sizeable welcome bonus: Zero annual fee credit cards may not give you much in the way of welcome bonuses, but credit cards with annual fees in India do offer you a large welcome bonus.
Valuable perks: The best credit cards give you a host of perks, travel benefits being one of these. Travel perks include airport lounge access, free hotel stays, memberships in airline loyalty, and hotel loyalty programs.
Special features: These cards come with certain special features, like the ability to transfer points.
Insurance and additional protections: One of the most significant benefits of these credit cards is that they offer valuable and even expensive insurance coverage policies as a reward. These can be in the form of trip cancellation or flight delay insurance, car rental coverage, emergency travel assistance, and others.
Entry into a rewards program: If you make major purchases with your credit card, its rewards program can more than offset the cost and annual fees.

Best Cashback Credit Card in India - Cash Back Rewards Credit Cards

Many of us use credit cards extensively in our personal and professional lives. What if we were to tell you that you could earn money every time you swipe your card for a purchase? With cash back credit cards, it's possible to earn money every time you make a purchase.

The concept of cash back credit cards is relatively new in India. mymoneykarma demystifies these type of credit cards so that you can avail of the cash back credit card features and benefits. mymoneykarma also brings you a list of cash back credit cards that offer the most benefits. Let's get started.

What Are Cash Back Credit Cards?

These are particular types of credit cards that pay you back a certain percentage of the amount you spend for every transaction in the form of rebates or points that you can exchange for gifts. The usual rebate rate is 1-2% of the transactional amount for most credit card companies. More than half of the credit companies offer cash back credit cards in India.

Types of Cash Back Credit Cards

Different types of cash back cards come with various benefits that we’ll cover in this article. A good cash back card can help you cover expenses, build credit, or even grow your savings.

Before picking a card and starting the application process, you should have a good idea of your spending habits. Cash back cards are often designed with certain types of spenders in mind. The cash back card will work best for you if its reward structure fits your buying habits.

There are three common types of cash back credit cards.

Flat rate: Some cash back rewards cards offer a flat rate of cash back on every eligible purchase. You don’t have to worry about which card to use at which store because you get the same rewards rate everywhere.
Bonus categories: Some cards have cash back offers on specific bonus categories. Bonus-category cards can help you earn more than many flat-rate cards as long as you keep track of where to use the card for the best rewards.
Rotating categories: With these cards, you can earn much more, but it is on the cardholder to remember where to use which card for what business need.

Balance Transfer Credit Card - Credit Card Balance Transfer

If you have a huge loan or a heavy debt on a credit card, which you can't afford to pay off, do not think that you have met the end of the line. Even if you have no other means of backup in such a situation, the balance transfer facility could be an option for you.

As with loans, balance transfer is a viable alternative for credit cards as well. The service is offered by many card-issuing companies and banks, and you can avail it with relative ease.

What Is Balance Transfer?

BT is a facility in which you get a new credit card with a low APR, and then transfer your high credit balance to it from your old cards. Basically, you use a new card to pay off your debt on other cards, but you get the provision of paying a lower interest rate. You might even find a few balance transfer cards which offer 0% introductory APR for a limited period.

Why Opt for a Balance Transfer?

A few of the benefits of balance transfer credit cards are given below:

Pay Less Interest: The very reason to even consider a balance transfer in the first place is that you get to pay a lower rate of interest than that at your previous credit card company. This can be either for your general financial benefit or to repay debt more easily.
Streamline Your Finances: You can transfer your outstanding balance from multiple credit cards to a balance transfer card, thus streamlining all your payments into a single payment, which is much easier to manage. It is also unlikely that you will miss payments due to different billing cycles.

However, when would it be ideal to consider a balance transfer? How can you get a balance transfer done? What factors are to be considered before going for a balance transfer? Let's get a little deeper into it.

How Do Balance Transfer Credit Cards Work?

We, at mymoneykarma, strive to make your finances easier for you to understand. Mentioned below is a detailed step-by-step description of how the balance transfer facility works.

Search for the best and most suitable balance transfer facility. (Heads up! The next section deals with this in detail)
Apply for a balance transfer card - you could do so online, through your phone, or by visiting the card issuing company directly.
Provide the details required - such as the account number and the amount to be transferred.
Wait for the issuer to approve your request. The lender or card issuer will check your credit history and credit score before making a decision. There isn't any guarantee that your application will be approved; even if it does, the full amount might not be approved for transfer.
Understand the terms and conditions. A card issuer might not allow you to transfer debt between the products of their own company. However, you can move other types of debt (like a loan or a mortgage) to a balance transfer credit card.
Wait for three weeks and keep making payments on your old accounts till you get alerted by the new card issuer that the transfer procedure has been completed.
Once the balance transfer is successful, all your old cards will be wiped clean, and your entire debt will be transferred to your new card.
Try to pay off most of your balance within the introductory period when the APR is low. That's how you must utilize a balance transfer card to your advantage - save money on interest and pay off debt faster.
What about the old cards? Well, try not to close them, as doing so will make your credit score drop. Keeping your old accounts active is healthy for your credit history. However, if there is a hefty annual fee that you can't afford, you better cancel it rather than inviting more debt.

Tuesday, March 16, 2021

Is It Good to Have Multiple Credit Cards? - Advantages of Multiple Credit Cards

Advantages of Multiple Credit Cards

Why don't you do a quick count? I bet you have multiple credit cards, and I'm sure you can relate to a few of these reasons for the same:

Many retailers don't accept credit cards of certain card networks. If you have multiple cards, you can just use your Visa or Mastercard in circumstances where your Amex card doesn't work.
It acts as an emergency backup that gives you quick access to funds. If you lose one, you can always rely on another.
A travel credit card is undoubtedly a great companion during overseas travel. Many of these have no foreign transaction fee. It's a good addition to the kitty.
A separate business credit card ensures that you manage your personal and work-related expenses well.
When used responsibly, multiple credit cards help in improving your credit score over time.
Reward credit cards are very lucrative; the more cards you have, the more reward points you earn. Same goes for cashback credit cards.
Huge signup bonus offers often tempt people to add more cards to their wallets.
Frequent travelers tend to have many co-branded credit cards in order to earn more rewards or loyalty points, airline miles, airport lounge access, and other travel-related perks.
Many cards come with some shopping and travel protections. People often end up with multiple credit cards just to enjoy the benefits of free travel insurance or purchase protection.

All that's great, but is it there a limit on credit cards that a person can have?

In Theory...

In theory, plastic is unlimited - you can get as many credit cards as you want.

Credit card issuers typically don't check the number of cards you have while deciding whether to approve you for a new one. Several other factors, like your income, your debt-to-income ratio, and your credit score, are used to make this assessment. Moreover, too much available credit doesn't harm your credit score given you pay them responsibly.

Thus, a large stash of credit cards won't keep you from getting more in the future. What matters is an outstanding credit balance. If you have a high balance in your credit cards, it's quite possible that you'll get denied more credit.

In Practice...

Taking too many credit cards can put you in a dicey situation. Although there isn't any defined limit, you might run up against a cap in certain circumstances. Lenders might not be comfortable with giving you an unlimited amount of credit, which means that you could be denied a new card since you already have too much open credit on other cards. Let me share a personal anecdote.

I've always been a smart credit user. I had carefully picked up four credit cards that catered to my needs and strongly resisted the urge to take more. My total credit limit, among all of my four cards, was Rs.3 lakh. Suddenly, in 2017, a renowned Indian lender introduced a new card - let's call it 'Card-5.'

Now, despite my strong determination to resist the temptation, I really liked the rewards program of Card-5 and wanted to add it to my portfolio. However, since I already had a whopping Rs.3 Lakh as my existing credit limit, the lender wasn't comfortable to extend more credit to me. They told me that my application would most likely get rejected - not because of the number of cards I had, but because of my total amount of open credit.

The Dangers of Multiple Credit Cards

They say that too many cooks spoil the food. Similarly, too many credit cards can spoil your credit health in several ways.

The world of credit cards is nothing short of an enigma. Using them ignorantly is a recipe for trouble. Don't invite too much trouble.
Too many credit cards often lead to baseless overspending.
With too many cards on your plate, you might miss payments and end up carrying a balance on most of them, accruing interest.
You'll most likely have trouble managing multiple cards and lose track of which one should be used for which type of spending.
If you mess up any of these, you could very much be heading towards a pit of credit card debt!

Friday, March 12, 2021

Losing a Credit or Debit Card Abroad

I was on an adventure-packed backpackers' trip to Europe a few years ago. Quite a noob to the concept of credit cards, all I had taken along were two debit cards and cash. The trip was exhilarating until one day, in Holland, I became the victim of a pickpocket.

My wallet was gone, along with one debit card and all the Euro I had. I was shaken by the horrific experience that followed. I don't speak Dutch, and those Dutch guys hardly knew much English. Communication barrier made it very difficult for me to seek help and support. My trip almost got derailed!

Thanks to my other debit card, I managed to make it back to India, safe and sound. However, the dreadful incident taught me a good lesson, and I am here to share with you what I learned.

Potential Dangers of Losing a Card

Losing a card doesn't necessarily indicate the physical loss or theft of a card; your card's sensitive data and information could be stolen, which is much more severe than just losing the physical card. Your credit and debit cards are your primary sources of funds during travel.

No one is naive enough to carry a thick wad of cash while traveling. If you lose your cards, you will be stuck in an alien land with a lot of difficulties. Apart from the inconvenience, you would also be at risk of financial fraud.

Cash flow: When you lose a debit card, your hard-earned money is in jeopardy. If thieves steal your debit card and empty your account, you will have a tough time managing your expenses and paying your bills. However, a false play with credit cards just increases a hypothetical credit balance which doesn't drain your pocket.

Fraud: Financial fraud are rampant and tourists are the easiest victims. If you lose a credit card, and it is used to commit financial fraud, you don't lose much. As per RBI's guidelines in 2017, if the bank is in any way responsible for the fraud, you have zero liability.

On the other hand, if your own negligence results in the fraud, you would have to bear the entire loss until you report the unauthorized transaction to the bank. The bank shall bear the liability of any illegal transaction that occurs after you have reported the issue.

Fraud committed through lost debit cards, however, put you in a vulnerable position, as the fraud protection policies for lost or stolen debit cards are quite weak. The bank might not cover the fraudulent charges, and the lost amount might never be reversed.

Resolution: The banks take a lot of time to resolve issues pertaining to a lost or stolen debit card. They have time up to ten days to investigate your claim and it might take even longer to replace the funds in your account. If the account concerned contained all your savings, then you would have to manage without money for a long time.

Such a situation would severely affect your finances. If you complain about a lost or stolen credit card, the bank's money is at stake and hence they will act immediately to resolve the issue. You need not bother a lot as you will not face much hassle.

We know that credit cards are not only safer than debit cards but also a better choice for daily spending. Losing a credit card is easier to deal with than losing a debit card. However, the most important fact is that you stay so cautious that you don't lose either. You must be prepared to face an emergency. Consider getting travel insurance, just in case.

Steps to Take If You Lose Your Cards Abroad

Whether you lose your cards, someone steals them, or they get stuck in a faulty ATM - the hassles are endless. It can be extremely inconvenient, but you can quickly redress the issue when you are in your homeland. If such incidents happen in a foreign country, especially if you do not know the local language, you are in serious trouble!

Before you move out of your comfort zone (which, in this case, is your country), you need to know what steps you should take and whom to approach if you are in such a crisis.

Get the Right Mix: Before you take off, fill your wallet with debit cards, credit cards, prepaid forex cards as well as currency notes of the destination country. Your primary mode of expenditure should be through prepaid forex cards and credit cards. These cards are safe and have good anti-fraud features. Refrain from using your debit cards and try to keep them as backup options. They are unsafe as they are the keys to all your savings; and if they fall into the wrong hands, all your money will be gone.

As you pack for your trip, you should split up the cards and cash amidst your baggage. Even if you lose your wallet, you won't lose all your financial sources at once.

Hotlist the Lost Card: If you misplace or lose your credit or debit card, you need to hotlist the lost card immediately. The best way to do this would be to call your bank's customer care helpline and request them to block your card. You need to be ready with all necessary information pertaining to your credit or debit card account for verification purposes. Once your card is successfully hotlisted, you can rest assured that nobody can misuse it.

The banks that operate in large-scale have dedicated helplines for credit or debit card related issues, whereas smaller banks have a general helpline number. You can call in either during an emergency and seek support. You should know the numbers that you must reach out to.

However, when you are traveling overseas, the default helpline numbers might not work. Quite a few banks have specific phone numbers for international calls. Knowing those numbers would be an added advantage as you can quickly call and take action. Once you report the loss to your bank, follow the bank's instruction on the steps you need to take next.

Apply for a Duplicate

The follow-up action would be to apply for a duplicate card. Some banks make life easier for us by facilitating the application online, whereas some banks might ask you to visit the branch in person to submit an application.

Most private banks have branches or overseas offices in various countries. You could locate them through their website and visit them to seek further help. Some banks might be able to provide a duplicate card right away or by an overnight courier. However, do not expect smaller banks to be so proactive, and also know that such services might be quite expensive.

Use Backup: You should never step out of your country with just one card in your wallet. It is imperative that you have multiple cards - preferably a mix of different card networks. If you lose one card or a card doesn't work due to some technical glitch, you must have something else to rely on.

Backup doesn't necessarily mean that you should carry as many cards as possible. When I was robbed and stuck in Holland, my other debit card was barely useful. I needed cash to travel in a cab; I needed cash to make a phone call; sadly, I had none, and I had to walk for 3 miles to find an ATM. You must always keep a bit of cash on you as a backup.

Monday, March 8, 2021

How Well Do You Know About Credit Card Foreign Transaction Fee?

When you travel overseas, whether to carry a credit card, debit card, or cash is a significant question that comes to the mind of every traveler, primarily due to the extent of charges that each of them may incur when used abroad.

There are three types of charges levied when you make a transaction abroad:

Foreign Currency Conversion Fee: This surcharge is imposed for making any purchase overseas, wherein the transaction is conducted in your country’s currency. In other words, this fee is charged by a foreign merchant on your card to convert the transaction into the currency of your country.

Currency conversion charges are a result of Dynamic Currency Conversion(DCC) or Cardholder Preferred Currency(CPC). Every merchant should seek your permission before using DCC.

Let's discuss this with an example. Say you are an Indian citizen visiting Malaysia for a few days. During your stay at the hotel, you use a spa service. During the final settlement when you check out of the hotel, you decide to pay for the spa service using your credit card, which was issued in India.

While making the transaction, the hotel authority will give you the option of telling you the bill amount in Rupees rather than Ringgits (so that you don't have to bother converting Ringgits to INR). If you say yes, the hotel authority will pass your transaction through a DCC service provider, and the currency conversion rate will be applied respectively. However, if you say no, your credit card payment network, such as Master, Visa, or Amex will handle the conversion from INR to Ringgits, and the amount paid will automatically reflect in Rupees on your statement.

Credit card payment network providers levy a charge of 1-2% at max, which is lesser than DCC rates, which may cost you around 3%. Please note that currency conversion charges are not shown separately on your credit card statement; instead, they are added in the total amount paid at the point of sale.

Credit Card Foreign Transaction Fee: It is referred to as the fee that your card issuer levies on a transaction that takes place in a foreign country. The foreign transaction fee lies between 2.5-3.5% of the total transaction amount.

Cash Advance Fee/Withdrawal Fee: The charge levied on the transaction when you withdraw cash overseas through a credit card, is known as a cash advance fee. Withdrawal of money abroad through a debit cards incurs withdrawal fees as well.
Foreign Transaction Fee

This is an interchange fee that you have to pay when you carry out a transaction overseas, even if it is for a nominal amount. It involves a three-way arrangement between the bank, the network provider of your card(Visa/Master), and the merchant, which enables your bank to deduct a certain amount from your account on each foreign transaction.

Foreign Transaction Fee in India

Usually, network providers such as Visa and Mastercard charge a fee of 1%, but banks in India add an extra percentage to it; making it around 3-3.5% when you use debit or credit cards abroad.

Some banks claim to offer travel credit cards that don't charge any foreign transaction fee, but this is a false claim. As per the agreement between banks and the network providers, you will have to pay the foreign transaction fee.
Forex Card or Prepaid Travel Cards - A Solution to Credit Card Foreign Transaction Fees

Forex cards don't levy a foreign transaction fee, and charge only a minimal ATM withdrawal fee. They are the most recommended form of carrying currency while traveling abroad.

Forex cards are pin-protected and can be easily replaced if stolen or lost. Prepaid travel/forex cards are available at better rates when compared to traveler's cheques and currency notes. They can be reloaded quickly and at any time.

You can save up to 2-5% on transaction fees by using forex cards, as compared to international credit or debit cards. Forex cards are also beneficial because they are not susceptible to changes in currency conversion rates and carry currency at a fixed price.

They also come with an insurance cover, and all hotel establishments accept forex cards without levying any charge.

Credit Card Cash Advances Can Kill You!

Credit cards are such amazing inventions, right? Those rectangular pieces of plastic open up a whole new world of funds and freebies. One swipe of a credit card can get you anything you want or need, including cash of course. It is nothing but convenience right at your fingertips. However, are you aware that such convenience comes at a steep price - literally! All credit card users are hopefully aware of the risks of debt that tag along all instruments of credit. One tiny, seemingly trivial mistake like missing a due date can cost you dearly. However, nothing is more of a pitfall than credit card cash withdrawal. Whether you make a mistake or not, cash advances can cost you a fortune for no significant fault of yours.

What is a Credit Card Cash Advance?

Did you know that you can withdraw money from ATMs using credit cards?

When you use a credit card to withdraw liquid cash from an ATM, the credit card companies call it a "cash advance." Some lenders also provide convenience cheques to their customers to pay for purchases in situations where the vendor doesn't accept credit cards but accepts cheques.

The process of taking a cash advance is the same as that of making a cash withdrawal from an ATM with your debit card. However, when you withdraw cash using a credit card, the money isn't yours - you are essentially pulling funds from your credit card account.

Credit cards have a cash advance limit, denoting the maximum amount of cash that can be advanced against the credit card's balance. The cash advance limit is usually much lower than the overall credit limit. Typically, it is set as a proportion of the credit limit - if the credit limit changes, so does the cash advance limit. Interestingly, currency purchases made through credit cards also count as cash advances - be it foreign currencies, cryptocurrencies, or stocks.

Cash advances should ideally be used only in emergencies because they come with a higher APR than your regular credit card balance, and banks often charge cash advance fees in addition to ATM fees.

What's the Problem Here?

Well, everything! Unbeknown to you, credit card issuers impose an entirely different set of terms and conditions on cash advance transactions. If you wish to understand that, you first need to know how normal purchases on credit cards are generally billed.

Credit Card Billing System

Credit cards have a fixed billing cycle with a billing date. The bill, with a list of purchases made over the entire billing cycle, is generated on the billing date. This bill has a due date by which you have to pay the amount back to the bank. You can either pay the total outstanding or the minimum due. The minimum due is a certain proportion of the total outstanding amount which you must mandatorily repay every month in order to avoid defaulting.

Let's assume that your credit card bill date is the 2nd of every month. The due date is typically 22 days after the billing date, i.e., 24th of every month. The purchases you make even a day before the billing date - let's say on the 1st of a particular month - becomes a part of your current bill, which has to be paid by the 24th of the current month. If not, a late fee, as well as an interest rate, is levied on the amount.

The purchases you make on the 3rd of any month will have to be repaid on the 24th of the next month; so, you get at least 50 days of free credit. However, this logic does not apply to cash withdrawals using a credit card. There is no concept of a 'free credit period' in the case of cash advances.

Cash Advance Billing System

When you withdraw cash using credit cards, the interest starts accumulating from day one. This interest typically varies from 2.7% to 2.85% per month. Since credit card interest is compounded monthly, the effective APR (Annual Percentage Rate) tends to be around 38% to 40%! Moreover, a cash withdrawal charge is also levied, which is either a flat rate or around 2.5% to 4% of the withdrawn amount, whichever is higher.

For some cards, the APR for cash advancement may be the double of the APR for regular purchases. Additionally, ATM fees and foreign transaction charges are imposed if you are abroad while making the transaction. This might catch you off guard, since most of us are unaware of these different norms.

So, drawing on our previous example, let's assume that you have withdrawn Rs.10,000 on the 3rd of the month using your credit card. Interest will be piling up till the time your bill is generated, i.e., the 2nd of the next month - after 29 days. These 29 days are not interest-free.

Assuming that you pay the bill right away, the interest for this period, at the rate of 40% per annum, on an amount of Rs.10,000 works out to around Rs.333. This interest is over and above the cash withdrawal charges of approximately Rs.350. Effectively, you end up paying an extra amount of at least Rs.680 in just a month for a withdrawal of Rs.10,000 using a credit card.

Imagine what will become of this figure if it keeps compounding for a year? The longer you take to pay off the amount, the heftier the interest will be.

Credit Card or Cash - What is Best while Travelling?

Going on a trip? Well, you might feel a tad bit uncomfortable when you step out of your comfort zone. You might wonder how to secure yourself financially during travels. Should you use your credit cards or stick to the old way of using cash? Your guiding spirits from mymoneykarma can steer you out of that puzzled state of mind with one quick read. Let's help you decide how you should spend your money while traveling.

Get to the Basics

Rather than stating the obvious, we would like you to introspect and answer these questions in your mind:

Do you tend to overspend when you have access to a lot of money?
Do you often forget to pay your bills on time?
Do you go wild and surge into a shopping spree while traveling?

If you have answered these questions with a strong and bold "no," then we believe that you are a responsible spender who knows how to keep expenses within limits. You should consider using your credit cards while traveling. Skeptical, right? Read on to understand its dynamics.
Disadvantages of Cash

Cash payments barely promise perks or benefits. If you flash money, you could attract unwanted attention. An outsider with cash is an easy target for thieves. If you lose cash, your money is gone. Need I say more?

Using Credit Cards during Travel - Advantages

What's in a credit card apart from some numbers and letters on plastic! It is safer to use credit cards during travel. If you lose it, you can simply block it and get a replacement; you aren't technically losing your hard-earned money. It keeps that tension out of your head. It also brings along several benefits.

Reward points : If you happen to have a Rewards credit card, it can sweep you off your feet with the amazing benefits. Most travel rewards cards offer bonus points for booking flights and hotels. Many of these cards have tie-ups with hotels and you can avail a discount while booking. Apart from that, the more you spend, the more reward points you earn - you can reap their benefits by redeeming them later.

Facilities : Most credit cards offer perks to members. You can't avail a 'book-now-pay-later' hotel booking or those sassy self-drive rental cars without a credit card. Some credit cards provide protection for lost luggage and insurance for your travel. A lot of credit cards give you free airport lounge access to wait for your flight in luxury. A handful of travel credit cards slacken the rules for you when you cancel a booking or change the dates.

Convenience : A sleek and tiny card fits snugly into your wallet than a thick wad of cash. Moreover, what if you are just strolling on the beach and feel an impulse to frolic in the blue ocean? What if you are going to the pool bar? Cash could get soggy, lost or stolen. Credit cards are extremely convenient and safe as you need not bear liabilities if they are stolen.

Using Credit Cards During Travel - Disadvantages

Remember those three questions that you had answered in your mind? If you had a "yes" for an answer to any of those, you might need to be extra cautious while using credit cards during travel. Remember that these magic cards can be dangerous when misused.

How badly do we want to purchase those much-coveted souvenirs while traveling! Credit cards give access to oodles of available money. Spendthrifts would lose their minds and splurge on shopping. Irresponsible spenders might not only cross their budget limit but also fail to repay the money on time. Payment issues can pull down your credit scores; they can and will bring you a hefty APR, and you could get caught in the notorious debt trap.

However, let's assume that you have planned well and saved up enough for your trip. You will hopefully spend sensibly and have the required money when the due dates arrive.

Oh, there is one more thing that isn't related to your spending habits. In spite of carrying multiple credit cards, you might run into unexpected exigencies. You might visit remote locations where cards aren't accepted. In case you are traveling abroad, you must check whether your card network functions in the destination country. Visa and MasterCards are more or less accepted universally, but there are quite a few other card networks like Discover, Amex, RuPay, etc. that do not work in all countries. Moreover, credit card fraud is in vogue these days. You need to be on your guard while you travel.

Saturday, March 6, 2021

Are You Ready for Your First Credit Card?

    “How do I get my first ever credit card?”

    “What is the best credit card to start with?’”

    “Which first time credit card is the easiest to apply and get approved?”

These are, perhaps, some questions racing through your mind when you are about to get your first credit card.

You feel excited yet apprehensive at the same time. It’s almost the same rush of feeling that you got during your first school crush years back. After all, this is something that you’ve wanted for a long time. Perhaps ever since you saw one with your parents. Maybe you know a credit card as a lifestyle or a status symbol, or even wish to have one for genuine utilitarian reasons.

These are in fact some of the questions asked by young adults aged between 18 and 21 years of age, and some of their reasons for wanting a credit card. The age group given above also happens to be that of college-going kids. Interestingly, their parents ask these questions as well! After all, they too need to know whether their kids are ready for getting a first-time credit card.

There are a few things that you, as a potential first-time credit card user, should remember. Getting a credit card when you are leaving home, for a party, a foreign trip, shopping, or just because you feel like it, are not good enough reasons. Instead, here are four rules that you need to consider before applying for a credit card for the first time:

Maintain an emergency fund to cover three months worth of necessary expenses
Have a full-time or regular part-time job for at least 12 months
Make a budget for 12 months and live below your means
Use a debit card for one year without using the overdraft protection or getting a purchase declined.

Why Is an Emergency Savings Fund More Important than Building Credit?

Here’s a financial education tip for you!

Your top priority should always be to pay yourself even when you are paying for living expenses and various other bills. You need to make savings your commitment. The critical thing to remember here is that before you think of applying for a store card or a credit card, make doubly sure that you have enough saved up for in your savings accounts for your living expenses.

An emergency fund is important because in case you were to face job loss, loss of income, a medical emergency, or sustain an injury, you’ll need the emergency fund for a few months at least. During such a time, more than looking for a job, you would want to be taking care of yourself first. Having an emergency fund helps you remain independent in such cases.

Why Income Matters for Young Adults Wanting a Credit Card

You may think that credit card companies always look at a person’s income before approving the first credit card. That is not entirely true. They do not focus on income as much as you think. However, having a steady source of income is important for the sake of your own credit health. Therefore, one instance where you should not be applying for a credit card is when you have sporadic or seasonal income.

For instance, while at college you may work only during vacations. If you can’t pay the balance of a purchase made by credit card on time, the merchant will require a minimum monthly payment plan from you. This usually is 3% of your total outstanding balance.

You will have to pay this regardless of whether you have a job or not, and interest will be charged if you miss payments. The most unfortunate thing is that records of such instances soil your credit report for several years. These are not to be taken lightly, as they lower your credit score and decrease your chances of getting affordable loans.
Your First Time Credit Card: The 5 Best Sources

Now that you are determined to get your first-time credit card, you need to find the best way for it. Here are some of them.

Your bank: If you already have a savings or checking account at a bank, apply for a credit card there first. There are high chances that your application will be accepted as you are already their customer.
Secured credit cards: Secured credit cards are those that have a security deposit against the credit limit. This makes it less risky for the lender.
Credits cards sans credit history: These are not so easy to find. However, it can safely be said that most of the well-known credit card providers give customers limited-history credit cards.
Retail and store cards: These are easier to get, but come with high-interest rates. Additionally, you can only use these for making purchases with a specific brand.
Cosigners: To get a credit card, most banks now require a co-applicant's signature. This can be your parents or guardians. You can get a card this way easily, but know that usage of the card will affect their credit history as well.

Monday, March 1, 2021

Credit Card Usage Tips - Credit Score for Credit Card

Banks try their best to retain their existing cardholders and work hard to attract more. With this in mind, banks are often willing to offer a number of perks and benefits to their customers. It is always at the customer’s discretion that these privileges and liberties are put to use.

Here are a few avenues that you could explore to receive additional perks and improve your credit health.

Limit Your Expenses

If your credit limit is high, you will tend to spend more. Increasing your credit balance leads to an increase in your credit utilization rate, which inevitably brings down your credit score. Also, if you spend more than you can afford to repay, you might incur a debt.

You can ask your issuer to set caps on the amount of purchases that you are allowed to make so that you can keep your credit utilization rate low, preferably below 30%. Alternatively, you could cap your expenses yourself by setting up a monthly budget.

Change the Due Date

Timely payment is crucial for your credit score. A late or missed payment can have long-lasting repercussions. However, if you have multiple credit cards with different due dates, you could get confused and miss a payment unintentionally.

You could sort out this problem by speaking with the card issuers and asking them to move your monthly due dates to a single date. That being done, you will have just one date to remember and the chances are that you will not miss any payments anymore.

Increase Your Credit Limit

You can negotiate with the card-issuing company to decrease your credit utilization rate by increasing your credit limit. This request will lead to a hard inquiry; so you must carefully evaluate your chances of approval before applying for the raise. If your current credit limit is low, or if you carry a balance, you might try to request an increase in your credit limit.

The decision is entirely at the company's discretion. However, if your request is approved, you must be very careful with your expenses. A higher limit might tempt you to spend more.

Reduce Your Interest Rate

If you have been associated with your bank or your card-issuing company for a long time, you would definitely be a valuable customer for the bank. There is no harm in politely requesting your bank for a lower interest rate, provided that you have maintained a clean credit history with timely payments.

If approved, a lower interest rate can help you save money if you were ever to carry a balance in future.

Remove Late Fees

If you've had a spic and span track record of timely payment, you can approach the card-issuing institution and ask them to waive the late fee for your late payments. Some cards also have an offer in which the late fee of your first missed payment is discounted.

However, this is just a backup option, and you should ensure that you make all payments on time.

Annual Fee Waiver

Some credit cards charge a hefty annual fee, and many customers even cancel credit cards to avoid it. In case you too are thinking on the same lines, stop and reflect! Closing an account can affect your credit age, and you wouldn't want your credit score to drop because of that.

If your issuer values you, they might be willing to waive your annual fee. You could try talking to them and ask for a waiver.

Friday, February 26, 2021

What Happens If I Overspend On My Credit Card - Credit Card Overspending

When it comes to using your credit card, you may see yourself as credit-card rock star. After all, you always pay on time, and even have a nice credit. When compared to newbie credit card holders, you’ve got the basics of usage right.

However, you may be using your credit card too much.

Credit cards are wonderful financial instruments of course. They are handy because they allow you to get instant loans whenever you want. However, this comes at a risk since you need to plan your expenses. You need to repay those loans as well. Taking too much credit in a short time can be risky.

Now, your credit utilization rate may be healthy, but don’t let that make you complacent. There are many elements of financial health, so just because the credit utilization rate is on the safer side, it’ll be prudent not to get complacent.

Here are some danger signs to watch out for so that you can control your spending patterns.

You’re continuously behind your savings goals

When you are overspending, you are falling behind on your savings goals. For example, you had decided to save Rs. 1,50,000 this year but at the yearend you found that you have Rs. 100000 saved. Similarly, you may be falling behind on saving or your retirement fund, investment plans, and more. Neglecting these things or the long term can put you in a serious financial position.

Always make sure that you are putting money aside for these.

Buying out of boredom

When you are bored, it can be very easy to get on a splurging spree. It can be hard to resist buying things on a whim when you are bored out of your senses. The main problem is, it can be pretty expensive.

This can be especially troublesome later on if you are buying things with a credit card, or even by other forms of EMI. These are purchases you don’t plan for, and these can easily be hard to pay back later without strong budgeting.
You are breaking your own budgeting rules

Maybe you do have some rules for spending and shopping, even when you don’t have a strict budget. But when you break these rules? You get a lasting guilt feeling. Now, splurging once won’t damage your personal finances, but uncontrolled ones may.

How to break through this cycle of overspending?

Here are some tips to do just that.

Make a better budget: This does not mean make a complicated budget. Those are not necessarily more effective. Something as simple as a weekly credit card spending rule or limit can be enough. You can also use the 50/30/20 rule. In this, 50% of your net income is for your needs, 30% is for wants, and 20% is debt settlement.
Study credit card statements: Study this, and you may find a pattern to your overspending. Rather than using a credit card, start using a debit card, which is safer in controlling purchases.
Do a temporary spending freeze: If you have a habit of overspending that is harming your finances, try this one. Freeze spending for a week to start with. You can then increase these to month-long freezes.

What is a Credit Card Cash Advance? -

How Well Do You Know Credit Card Reward Points?

Reward programs often motivate customers to utilize a credit card for bill payments, shopping, dining, travel, etc. In exchange, the users can accrue points and redeem them later for various perks and gifts. But why do these card companies offer reward points in the first place? Let's delve into a more in-depth discussion to discover the nuances of rewards points.

What are Credit Card Reward Points?

Whenever you use your credit card for any transaction, the credit card issuers earn an 'interchange fee' from the merchant, which varies between 1% - 2.5%. The outlet may negotiate for a lower fee if its sales volumes are soaring.

Along with the 'interchange fee,' credit card companies also make money from the annual fee and high interest earned on penalties of unpaid bills from the card users. So, to attract and retain customers, the company allocates a minuscule portion of its earnings (primarily from the interchange fee) to the users as reward or loyalty points.

Benefits of Reward Points

Air miles: If you are a frequent flyer, then air miles are a bliss for you. As a card user, you can redeem your reward points into air miles with the airlines that are in collaboration with credit card companies and get amazing discounts. Here are some examples of airlines that are associated with reward programs:
Air India - Flying Returns
Vistara - Club Vistara
Gift vouchers: Another benefit of reward points are gift vouchers, which may range from a minimum of Rs. 100 to Rs. 5,000 or more. You can utilize these gift vouchers anywhere as per your convenience, either at the brand's store or an online store. The categories of gift vouchers include apparel, books, groceries, lifestyle, food, beverages, and much more.
Room miles: Banks also affiliate with hotels for their reward programs, which provide customers with the leverage of redeeming their reward points into room miles at the partnered hotels.
Cashback: If gift vouchers and miles don't woo you enough, then a cashback offer may do so. The cashback that you receive on redeeming reward points can be used either against your credit card bill or for shopping. If you have a substantial amount of cashback through reward points on your plate, it could help you save a considerable amount of money.
Loyalty Points: Loyalty points are not new in the game of reward programs. However, if your bank offers you the provision of accumulating reward points earned on your debit as well as credit cards (of the same bank) under one roof and redeeming them together, isn't that a fascinating scheme?
Let's discuss this with an example of Axis Banks' eDGE loyalty rewards program. Here, as a loyal customer, you get to accumulate reward points on the credit/debit cards along with savings accounts and foreign remittances.

How to Calculate Reward Points?

Let's consider an instance: Suppose your credit card bill reflects 10,000 points against all purchases that you have made in the last one year, then what will the value of these points be in monetary terms?

The value of the reward points may vary from one company to another and can lie anywhere between 10 paise/point and Re.1 per/point. It can be determined by the price of the gift available against redemption. For example, if a credit card company is offering a wrist watch worth Rs 1,000 against 10,000 reward points, then each reward point is worth 10 paise.

How to Earn Reward Points?

Daily spendings: Use your credit card even for minimal-amount transactions. This can help you earn a substantial number of reward points, ranging from 1 - 10 or even more, depending on your spending frequency.
Welcome bonus points: Every bank offers some bonus points to welcome their customers. Before purchasing the credit card, check out the terms and conditions stated by the bank to earn these bonus points. If the spending threshold suits your budget, then this can be an excellent opportunity for you to obtain a considerable number of reward points by purchasing within 90 days of card issuance.
Co-branded cards: Reward points on co-branded cards are 5-10 times higher than other cards. Co-branded cards are launched by the card companies in partnership with airlines, petrol pump companies, and branded stores. So, if you use a co-branded card at any of the associated petrol pumps, you can earn extra reward points and discounts.
Spend on special occasions: You can also accomplish bonus points for using credit cards during festivals and other significant events. For example, during Diwali, some credit card companies offer 50 bonus points on the first online transaction.
Premium Purchases: Spending on high net-worth items such as jewelry or international travel bookings can also fetch you more reward points.
Use a premium card variant: If you use a card variant which is premium or super premium, you can earn a substantial amount of reward points for every purchase made. For example, Axis Bank My Zone card members can accrue around 40 reward points on every Rs 200 spent on dining during weekends.

How to Redeem Reward Points?

Before redeeming your accumulated bonus points, check out the following terms:

Minimum reward points: Find out the minimum number of reward points that you require to reach the stage of redemption, as mentioned by the credit card issuer.
Expiration Date: Reward points have an expiry period, which can vary from 1 to 3 years. Banks deduct the accumulated unused reward points at the end of every financial year as they are a liability on the banks' records, which they would want to eliminate. It is also a technique used by banks to coax card users into redeeming the points on time.
Redemption Fee: Reward redemption entails a fee of around Rs.100, which the bank levies to redeem the points.

Avenues of Redemption

You can redeem your reward points through any of the following modes:

Customer Care: Approach the customer care representative of your bank, either through phone or email, and place your request for redemption by providing the essential details. Download the redemption form, fill it in with the necessary information, and send it to the bank through e-mail or post as instructed by the executive.
In-Store: Banks have also partnered with several retail brand stores, which let customers shop and pay for their purchases through their accrued reward points. Any remaining balance for the purchase will be charged via your credit card.
Online: In partnership with numerous brands, most reward programs have started offering an array of categories such as garments, home appliances, and cosmetics, besides gift vouchers and charity donation, wherein you can utilize your reward points to shop online from any of these categories. Online redemption is the most convenient option among others.

A Few Tips to Be Vigilant

Read the terms and conditions that accompany credit cards.
Make sure that the reward system suits your financial needs and lifestyle. For instance, If you aren't a frequent traveler, then don't choose credit cards that provide air miles.
If you are unable to comprehend your rewards account, then get in touch with a customer care executive and learn the nuances of your credit card reward points.