Q/A - Credit Cards

Q - Is using a credit card a good practice for repaying after 50 days or should we use the debit card instead at wherever possible?

A - Using a credit card is useful provided you follow 2 rules:
1) Plan your spending in a balanced manner- Resist the urge to make an impulse purchase through a credit card. If you cannot resist such urges then debit card would work the best for you.
2) Pay off the full amount before the due date - Make the payment before the due date so that you do not pay any late payment interest charges which is quite a messy business.

Q - What do credit card companies or banks gain from the customers who pay their bills on time? If they don't , then why do they have reward points for paying bill on time?

A - It is incorrect to state that banks do not gain anything from consumers who pay the entire sum on / before the due date although the income from such clients is only marginal. Banks make a fee on every transaction that you make using your credit card. The reward points come from this fees. Through reward points the banks promote expenditure on the card with a view that at some point of time you may actually use the revolve payment facility and also they would make more money with more of your transaction.

Q - Could the credit cards be used for shopping online on the website outside Indian IP address or for making payment in dollars? Does the rule permit it?

A - It can be used except for gambling and lottery purposes. The spend has to be within the limit specified by RBI which is quite liberal.

Q - Some banks are charging a service tax @12.36% whereas others are not? Why is it so?

A - All banks charge the service tax @ 12.36% on interest and other fees.

Q - How is minimum amount calculated and what is it significance. Whats the advantage if I pay only minimum amount due to cash crunch?

A - Normally most card issuers allow you to pay off a minimum of 5% of the total outstanding every month. However interest is chargeable on the entire amount from the date of debit. It is not advisable to use the minimum payment facility as the credit charges are quite high (around 36% per annum). If you have a temporary cash crunch you can either get another credit card to pay for it or for longer period you can go for personal loan for paying it.

Q -Is the credit day's limit same for both cash transaction as well as the merchant transactions?

A - Some banks have different limits for cash transaction but the cash limit could be sued for purchases from merchant establishment although vice versa is not possible.

Q - Incase someone uses your credit card by stealing the card details for transactions online, how can one be secured of it and what should be done?

A - First thing to do is to immediately get your card frozen by calling the concerned bank and get the reference number for such request. You can then get a replacement credit card from the same bank which you should keep safely.