There are 2 sections of people – the first section truly knows how credit card works and the other which thinks that it is evil. The idea of this topic is to give knowledge about how credit card works and give tips on how to make it work the best for you.

Basics of how credit card works

Credit cards can be considered as a short term loan instrument given by the banks. Instead of spending via cash or debit card in which the actual cash with you decreases, you can spend the same amount through the credit card. A statement is generated monthly which collates and tells the amount that was spent and gives around a 15 to 20-day window to pay the said amount less any payments or reversals that may have been made.

Hence you get around 45 days free credit period wherein you spend that amount and can earn interest on that too – talk about having the cake and eat it too.

how credit card works
how credit card works

However, care has to be taken not to bite off more than you can chew because the interest rates on credit cards are a bomb {3-3.5% monthly} and if you fall into this trap, you will sink deeper and deeper by the minute.

Recommended Read: How to manage personal finances? 4 crucial steps

Payments: What is minimum amount due in credit card?

It’s a trap.

Do not even look at the minimum amount due in a credit card statement and just pay the full amount due if you can. Paying the minimum amount due prevents you from a late payment fee, however, this seems to be more of a convoluted way to trick unsuspecting customers because they will have to pay the interest fee on the remaining amount.

Also, note that if you continue paying the minimum amount due many times, then you may lose out of the interest-free period.

Bonus Tip 1: Any reversals are counted as payments for the last statement. Hence, if you don’t have money to pay off the last statement outstanding, make a transaction and then cancel it – the reversal will be counted as payment and you can pay for the transaction in the next cycle. 🙂

Do test it out first as to how the reversals get treated in your bank and merchant combination and please use it cautiously – don’t get saddled with useless items and even more debt.

Credit card bill payment offers

Credit card bills can be paid through cash or any other electronic payment methods. Some methods especially offline may entail some charge so it is better to go through online methods. While generally there are not many offers in paying credit card bills, there may be some cashback offers if you schedule a payment in some of the banks.

Alternatively, you may want to use Cred. You get points equal to the amount you pay through this app which can then be redeemed for cashback and other 3rd party offers. I have been using the app for 2 years now and from a money security point of view, I did not find any issue with it till now.

Credit card eligibility

Each bank has its own eligibility criteria which also differs from card to card even for the same bank. There are entry-level cards like Citi Rewards Credit Card (Click the name to apply), HDFC Money Back, etc, which require entry-level salary eligibility, and the next year’s annual fees are also waived off on a quantum of spends in the year. On the other hand, there are super-premium cards like HDFC Diners Black which require a high salary requirement, relationship history with the bank, or HDFC Infinia which is an invite-only card.

In case of no salary or self-employment income – like for a housewife, many banks allow for cards to be issued against a fixed deposit with the bank also.


Citibank Credit Card [CPA] IN

Credit limit

how to increase credit card limit
how to increase credit card limit

Generally, it is a good idea to have a lower credit limit at the beginning of the credit card experience. This is beneficial from both, the bank’s and the customer’s point of view. This is because the bank can gauge the creditworthiness of the customer and customers can get accustomed to the features of the card and also start feeling in using it at multiple places.

However, after you get accustomed to the card it might be a good idea to have a higher limit on the card. The obvious reason is that it gives you a higher line of credit, however, many people might argue that they don’t need such a high line of credit. However, once in a while there might be a big purchase that you would want to do with a credit card but if you don’t have a sufficient limit, it might not be possible.

Another reason is that once you get a higher line of credit, you can get approved for a better card with better features from the same or a different bank/ issuer.

Bonus Tip 2: If you have a high line of credit (or even if you don’t)
you should put restrictions on the one-time and one-day usage limits through net banking. Also, ensure that international usage is off when you don’t intend to use the card internationally.

This prevents you from misuse – totally in case of international misuse attempts (where recovery is also painful if possible) or partially in case of domestic attempt. After the first intimation of fraud, you can approach the credit card issuer, block the card and contest the charges. A smaller charge would be easier to manage for all parties.

Increasing that limit on the card can be done instantaneously through net banking, however, you do need to have internet access. So do increase the limit before you need.

Bonus Tip 3: If you want to purchase a large ticket item through a credit card because of points or annual spend requirements etc and you don’t have the limit, you might want to split the transaction, do the 1st tranche, pay it off and then do the 2nd tranche.

I purchased my car like this on my credit card!

How to increase credit card limit

This can happen both ways. After assessing the creditworthiness of the customer, banks themselves volunteer to increase the credit limit. Alternatively, after improving the relationship with the bank, one can approach the relationship manager and request for increasing the credit limit.

How to transfer money from credit card to bank account

While this is not the intended use of credit cards, many people in need of cash may resort to this activity. This method is preferred because of the following reasons:

  • Bypassing the cash withdrawal charges that are applied when cash is withdrawn using a credit card
  • Avoiding the interest which is levied on cash withdrawal from the day of withdrawal – hence credit period can be enjoyed
  • The credit limit is higher for normal transactions than for cash withdrawal

For this, you can use PayTM or other wallets like Freecharge or Mobikwik. You can load the money using your credit card and then send it to the bank. There might be charges applied – generally as % of transacting amount either on load through credit card or when sending to bank or both.

The charges vary from time to time as per the promotion going on and users can check and opt for the most cost-effective option. In case of a limited amount, generally, all should be better off than directly withdrawing cash through a credit card.

A word of caution

However, care must be taken to use credit cards cautiously and not get carried away with purchasing things just because there is a lot of credit limit. This money will have to be returned soon enough. A rule of thumb is to buy stuff only if you need it and would have bought through cash/ debit card anyway, and then you just choose to buy through credit to get the interest benefit.

If you are unable to pay the full amount, it is better not to buy stuff because this debt if not repaid timely has a 36-42% annual interest {3% to 3.5% monthly}. To put things in perspective, a savings account gives a 3% interest yearly. Many homes in developed societies have been ravaged by credit card debt. Because of these high-interest rates, the debt keeps on piling, and coming out becomes more and more difficult.

So, don’t treat a credit card as a source of money but just a payment instrument and keep a track of the final balance in the account after removing credit card dues. This should be positive.

Final Words

A credit card is a great way to get interest-free credit. Apart from this, there are many other benefits like reward points, cashback, air miles, etc which you can get from using a credit card. However, as with any other instrument care must be taken to use it properly and clear dues timely otherwise this may turn into a nightmare.

Recommended Read: Coming soon: Benefits from using a credit card.

Categories: Personal Finance

Ravi Maheshwari

Ravi is an IIM ranker with over 9 years of work experience and has helped optimize the financial performance of companies like BPCL, Sun, Ola, Swiggy, and Curefit. In this blog, he explains how to improve personal finance and also gives insights into financial models of companies.

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