Credit Card

What is a Credit Card?

A credit card is a payment card that allows you to borrow money from a bank or financial institution to make purchases or pay bills. When you use a credit card to make a payment, you are essentially borrowing money from the bank, which you must pay back with interest.

Credit cards typically come with a pre-approved credit limit, which is the maximum amount you can borrow at any given time. You can use the credit card to make purchases up to the credit limit and pay back the borrowed amount in monthly installments, known as the minimum payment.

Credit cards also come with an annual percentage rate (APR), which is the interest rate charged on the outstanding balance. If you don’t pay the entire balance in full each month, you will be charged interest on the outstanding balance, which can accumulate and make it more difficult to pay off your debt.

Components of a Credit Card

The components of a credit card typically include:

  1. Credit Card Number: A unique 16-digit number that identifies your account with the credit card issuer.
  2. Cardholder Name: The name of the person to whom the card is issued.
  3. Expiration Date: The month and year until which the card can be used.
  4. Security Code: A three-digit code (CVV or CVC) on the back of the card that provides an additional layer of security for online transactions.
  5. Magnetic Stripe: A black stripe on the back of the card that contains the account information and can be read by a card reader.
  6. Chip: A small, embedded microchip that provides added security for in-person transactions.
  7. Issuing Bank Logo: The logo of the bank that issued the credit card.
  8. Payment Network Logo: The logo of the payment network that the credit card belongs to, such as Visa, Mastercard, or American Express.

Additionally, some credit cards may have other components such as a contactless payment feature, a rewards program logo, or a signature panel on the back of the card.

Credit Cards: Eligibility Conditions

Here are the eligibility conditions to apply for a credit card:

  1. You must be an Indian citizen and at least 18 years old.
  2. You should either be a salaried professional or self-employed.
  3. You must have a fixed source of income that meets specific requirements set by the bank.
  4. You need to have a good credit score of 700 or more.

Banks and financial institutions will review your financial background and credit history before offering you a credit card. Some banks may also offer pre-approved credit cards. You can use online tools like credit card eligibility checkers to quickly check if you meet the eligibility requirements for a particular credit card.

Documents Required to Get a Credit Card

To get a credit card, you will typically need to provide the following documents:

  1. Identity proof: This can be your Aadhaar card, PAN card, passport, or driver’s license.
  2. Address proof: This can be your Aadhaar card, passport, driver’s license, or utility bills such as electricity bill, telephone bill, or gas bill.
  3. Income proof: This can be your salary slips, bank statements, income tax returns (ITR), or Form 16.
  4. Passport-size photographs: You may need to provide 2-3 passport-size photographs, depending on the bank or financial institution’s requirement.

Some banks or financial institutions may also require additional documents or information, such as your employment details, business proof (if self-employed), or credit score report.

What are the Different Types of Credit Cards?

There are various types of credit cards available in the market, some of the common types are:

various types of credit cards

  1. Standard Credit Cards: These are the basic credit cards that come with a predetermined credit limit and are widely used for regular expenses.
  2. Rewards Credit Cards: These credit cards offer rewards points on every purchase made using the card. The points can be redeemed for various benefits like cashback, gift vouchers, discounts, etc.
  3. Cashback Credit Cards: These credit cards offer cashback on eligible purchases. The cashback is usually a percentage of the total transaction value and is credited back to the card account.
  4. Travel Credit Cards: These credit cards are specially designed for frequent travelers and offer benefits like air miles, hotel discounts, airport lounge access, and travel insurance.
  5. Business Credit Cards: These credit cards are designed for business owners and offer features like expense tracking, employee spending limits, and rewards on business expenses.
  6. Balance Transfer Credit Cards: These credit cards allow users to transfer their existing credit card balances to a new card with a lower interest rate. This helps in saving on interest payments and managing debt better.
  7. Secured Credit Cards: These credit cards require a security deposit to be made, which then becomes the credit limit for the card. These are often used by people with poor credit scores or no credit history.
  8. Co-branded Credit Cards: These credit cards are offered in partnership with a specific brand or company and offer benefits like discounts, cashback, or reward points on purchases made with that brand.
  9. Premium Credit Cards: These credit cards come with high annual fees and offer premium benefits like concierge services, travel perks, premium rewards, and exclusive access to events and experiences.

Fees and Charges of a Credit Card

A credit card comes with various fees and charges that you should be aware of before applying for one. Some of the common fees and charges associated with a credit card are:

  • Annual maintenance charge
  • GST (Goods and Services Tax)
  • Over-limit fee
  • Late payment charges
  • Interest rate (APR)
  • Cash advance fee
  • Foreign Currency Mark-up Fee

Building Credit History with Credit Cards

Building a good credit history is essential to get approved for loans or credit cards in the future. Here are some ways to build your credit history with a credit card:

  1. Apply for a secured credit card: A secured credit card is a good option if you have a low credit score. You will have to deposit a certain amount of money as collateral, and your credit limit will be based on the amount you have deposited. Use the secured credit card responsibly, pay your bills on time, and in a few months, you will see an improvement in your credit score.
  2. Use the credit card responsibly: Use the credit card for small purchases, such as groceries or gas, and pay the bills on time. Late payments can harm your credit score and will take time to recover.
  3. Keep your credit utilization low: Credit utilization is the amount of credit you have used compared to your credit limit. It is recommended to keep your credit utilization below 30% of your credit limit. For example, if your credit limit is Rs. 50,000, try to keep your balance below Rs. 15,000.
  4. Keep old credit card accounts open: The length of your credit history also affects your credit score. Therefore, it is recommended to keep old credit card accounts open even if you are not using them.
  5. Regularly check your credit report: It is essential to check your credit report regularly to ensure that there are no errors or fraudulent activities. You can get a free credit report from the credit bureau once a year.

Features of a Credit Card

Credit cards offer several features to users, which can vary depending on the card issuer and type of credit card. Here are some common credit card features:

  1. Credit limit: The maximum amount of money a user can borrow using a credit card.
  2. Interest rate: The annual percentage rate (APR) charged on unpaid balances on a credit card.
  3. Rewards programs: Programs that offer rewards to users for spending on their credit cards, such as cashback, points, or miles.
  4. Sign-up bonus: A bonus offered to new users for opening a credit card account and meeting a spending requirement.
  5. Zero percent introductory APR: An introductory period during which the user is not charged interest on balances carried over from month to month.
  6. Fraud protection: Credit card companies offer protection against fraudulent transactions on their cards.
  7. Purchase protection: Some credit cards offer purchase protection against damage or theft of purchases made with the card.
  8. Travel benefits: Credit cards often offer travel benefits such as travel insurance, car rental insurance, and airport lounge access.
  9. Balance transfer: The ability to transfer balances from one credit card to another to take advantage of lower interest rates or promotional offers.
  10. Online account management: Most credit cards offer online account management for users to monitor their balances, transactions, and payments.

How is a Credit Card Different from a Debit Card?

A credit card and a debit card are both payment cards, but there are some key differences between them:How is a Credit Card Different from a Debit Card

Credit Card
Debit Card
Source of Funds
Borrowed Money
Your Own Money
Credit Score
Affects your credit score
Does not affect your credit score
Charged on the balance if not paid in full
No interest charged
May allow you to overdraw your account
May charge overdraft fees
Earn rewards for spending
Some debit cards offer cashback or rewards
Annual fees, late payment fees, and other charges may apply
May have some fees, but generally fewer than credit cards
Fraud Protection
Generally offers more robust fraud protection
May have some fraud protection, but generally less than credit cards
Liability for Fraudulent Charges
Limited liability for fraudulent charges
Limited liability for fraudulent charges

Note: The specific features and benefits may vary depending on the bank and type of card.

Advantages & Disadvantages of a Credit Card

Advantages of a Credit Card:

  1. Convenience: Credit cards offer a convenient way to make purchases without carrying cash.
  2. Rewards: Credit cards offer various rewards programs such as cashback, travel rewards, and points, which can be redeemed for various benefits.
  3. Build Credit: Using a credit card responsibly and making timely payments can help build a good credit history, which is important for future financial transactions such as taking a loan.
  4. Purchase Protection: Some credit cards offer purchase protection, which can protect against fraud, unauthorized transactions, and defective or damaged products.
  5. Emergency funds: Credit cards can provide an emergency source of funds in case of unexpected expenses or emergencies.

Disadvantages of a Credit Card:

  1. High-interest rates: Credit cards can have high-interest rates, which can lead to increased debt if the balance is not paid off in full each month.
  2. Fees: Credit cards can come with various fees such as annual fees, late payment fees, and balance transfer fees, which can add up and increase the overall cost of using the card.
  3. Debt: Credit cards can encourage overspending and can lead to debt if not used responsibly.
  4. Credit score impact: Late payments or defaulting on a credit card can negatively impact the credit score and make it difficult to obtain credit in the future.
  5. Temptation to spend: The availability of credit can lead to impulse purchases and overspending, which can be difficult to control.

Which Credit Card is Right for You?

Financial institutions offer different types of credit cards to cater to the various needs of people. You can choose from a variety of credit cards based on your purpose of buying one:

  1. Travel credit cards – perfect for people who love to travel as you can earn reward points for every purchase you make and use them to book flights, hotels, and cabs.
  2. Fuel credit cards – ideal for those who commute a lot as they offer fuel surcharge waivers, helping you save on fuel expenses.
  3. Reward credit cards – great for people who spend a lot on shopping. You can earn bonus points on every purchase and redeem them for discounts on your future purchases.
  4. Shopping credit cards – perfect for shoppers, as they offer discounts, cashback, and vouchers for shopping at partnered stores, whether online or offline.
  5. Secured credit cards – ideal for those who want to build their credit history and grow their credit score. These cards can be availed against fixed deposits and offer attractive interest rates, helping you save money in the long run.

Do’s and Don’ts of Credit Card

If you use a credit card carefully, you can avoid getting into debt. Here are some things you should do and avoid:


  • Remember your payment due dates.
  • Check your monthly statements.
  • Pay more than the minimum amount due every time.
  • Contact creditors to negotiate the APR (Annual Percentage Rate).
  • Keep your payments around 10% of your income.


  • Don’t use your entire credit limit.
  • Avoid using reward credit cards if you can’t pay off your debts quickly.
  • Don’t use credit as a substitute for your income.
  • Never miss payments beyond the grace period.
  • Don’t carry a balance from one month to another.

Credit cards are a convenient financial tool that allows individuals to make purchases on credit and earn rewards. However, they come with certain advantages and disadvantages that need to be considered before applying for a credit card. It is important to understand the terms and conditions of the credit card, the fees and charges associated with it, and the various rewards and benefits offered by the card issuer. By following the best practices of credit card usage, one can build a good credit history and improve their financial health.

Frequently Asked Questions (FAQs)

Credit Card

To get a credit card for the first time, you need to meet the eligibility criteria set by the issuing bank or financial institution. Typically, you should be an Indian citizen and at least 18 years old, with a stable source of income, good credit score, and the required documents such as identity proof, address proof, and income proof. You can apply for a credit card online through the bank's website or by visiting the bank branch. Some banks may offer pre-approved credit cards or instant credit card approval based on your credit score and other factors. However, it is essential to use your credit card responsibly and make timely payments to build a good credit history.
Yes, you can apply for a credit card online through the website of the bank or financial institution that issues the card. Most banks and financial institutions have an online application process that is simple and convenient. You can fill out the application form, upload the required documents, and submit the application online. The bank will then verify your application and documents and if everything is in order, they will approve your credit card application and send you the card to your registered address.
It depends on the credit card issuer's eligibility criteria. If you are not employed but have a source of income such as a pension, rental income, or investments, you may still be eligible for a credit card. However, some credit card issuers may require you to provide proof of income to qualify for a credit card. It's best to check with the specific credit card issuer to understand their eligibility requirements.
The maximum limit on a credit card varies depending on the issuer and the cardholder's creditworthiness. Generally, banks or financial institutions set the credit limit based on factors such as the cardholder's income, credit score, credit history, and other financial obligations. The credit limit can range from a few thousand to several lakhs of rupees. However, it is important to note that a high credit limit may not always be suitable for everyone, as it can also lead to high debts if not used responsibly.
The credit limit on a credit card is typically not a monthly limit. It is the maximum amount of credit that the card issuer has approved for you to borrow at any given time. As you use your credit card to make purchases, the amount you owe increases and your available credit decreases. Once you make a payment towards your balance, your available credit will increase again. So, the credit limit remains the same unless the card issuer decides to change it based on your credit behavior and creditworthiness.
Credit cards are usually valid for a period of 2 to 5 years, depending on the bank or financial institution that issues the card. The expiry date is typically printed on the front of the card and it represents the last day of the month in which the card will expire. Before the expiry date, the issuing bank will typically send a renewal card or contact the cardholder to renew the credit card. It's important to keep track of the expiry date of your credit card and renew it in a timely manner to avoid any disruptions in its usage.
Before applying for a credit card, there are a few things you should know:
  • Your Credit Score
  • Interest Rates
  • Fees and Charges
  • Rewards Programs
  • Credit Card Usage
To apply for a credit card, you will need to provide some documents such as identity proof (like Aadhaar card, PAN card, etc.), address proof (like utility bill), income proof (like the last 3 months' salary slip), and passport size photographs.
To apply for a credit card, follow these steps:
  1. Check your eligibility by reviewing the bank's criteria.
  2. Choose the credit card that best fits your needs.
  3. Gather the necessary documents, such as ID, address proof, income proof, and photographs.
  4. Apply online or visit the bank's nearest branch.
  5. Fill out the application form and submit the required documents.
  6. Wait for the bank to review your application and creditworthiness.
  7. If approved, your credit card will be delivered to your registered address.
You can buy almost anything with a credit card, just like with a debit card or cash. However, it's recommended to use a credit card for purchases that you can afford to pay off in full when the bill is due. It's also advisable to use a credit card for purchases that offer rewards or cashback. Avoid using a credit card for purchases that you can't afford or for high-interest debt, such as payday loans.
Yes, you can withdraw cash from an ATM with a credit card, but it is not recommended because it incurs high fees and interest rates. Credit card companies charge a cash advance fee, which is usually a percentage of the amount withdrawn, and interest starts accruing immediately without any grace period. It is advisable to use a debit card or withdraw cash using other means to avoid these extra charges.

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