Credit Card is one of the main alternates to cash and it has become very common thing in today’s world. From traveling to shopping to bills payment, you see the usage of credit cards almost all the way around you. But, there are some very basic things that you need to know & understand well enough if you are using credit cards or are planning to do so.
Here are five basic things that you need to know about Credit Cards
1. What is credit limit for Credit Card?
Credit Limit is the maximum amount of money you can draw or use for various transactions in one billing cycle using your credit card. This limit is applicable on one month billing cycle until your bill is generated, and is paid. This is total credit that you can borrow or draw from your credit card. If you use your credit card for transactions more than this limit then Credit Limit Exceeding charges are applied on your card as well as APR until the exceeding limit is paid. The card issuing bank decides this limit for a customer depending on his credit history, repaying capacity and relationship with bank.
2. What is Annual Percentage Rate?
Annual Percentage Rate is the Annual Markup Rate that is applied on your transaction amounts according to transaction types and number of days between your transaction date & complete amount payment date. It is simply multiplied with the transaction amount & no of days divided by 365 (for days in a year). Normally it is not applied if you use your card within limit for retail transaction & pay within due date. But in any other situation APR is applied. To know more about it and its calculation methods CLICK HERE!
3. What is EMI?
EMI or Easy Months Installments is a facility provided by banks on credit cards, where you can buy certain products as defined by bank and pay in monthly installments of 3,6,9,12, 24 or 36 months. Sometimes it is offered with zero markup and a minimal fee but you can avail it with markup, and a fee as defined by the bank.
4. What is Billing Cycle & Payment Cycle?
There is a bill generation date in every month for your credit card. Let’s say its 5th of every month. From 5th day of every month to 4th day of next month, you can use credit card for different transactions and bill will be generated on 5th day of second month. Then your bill payment date will be 25th of every month. The cycle between 5th of one month till 4th day of second month is your billing cycle and from 5th to 25th of second month is your payment cycle. So the billing cycle is for 30/31 days normally except for month of Feb, and payment cycle is 20 days.
5. What Minimum amount Due?
Minimum Amount Due is the amount that you have to pay to avoid any charges & penalties in your credit card bill. This does not mean that no charges will be applied if you pay minimum at all! Service charges will be applied in when you pay minimum amount due instead of total amount due. To know how these service charges are calculated CLICK HERE.
