Understanding the Basics: What Does Credit Card Mean?

Credit cards are sometimes considered the black sheep of the financial world. People are either too scared to use them or use them recklessly, creating a loop of endless debt for themselves. Using credit cards with care can help you avoid either of these predicaments. With a little planning, you can use plastic money as a safe and reliable credit instrument.


Meaning and Basic Features of Credit Cards

A credit card is a financial tool which lets users pay for the purchase of goods and services on credit. Issued by banks and other financial providers to eligible users, these cards work on the condition that cardholders must pay back the borrowed money according to a predetermined cycle. 


When you time your purchases carefully and fully pay off the bill every month, you can enjoy an interest-free use of credit. If you don’t, the overdue balance attracts interest as per the rate of the card. Credit card annual interest rates are pretty high, and this makes it easy to accumulate large debt if you are not careful. 

Who Can Get a Credit Card?

Business owners, corporate employees, professionals, homemakers, students – everyone can use a credit card. However, to be a primary cardholder requires meeting certain criteria that make you eligible for credit. 


Financial institutions can also pre-approve credit cards, depending on your relationship with them. These cards can be free of cost or have nominal annual and joining charges. Their credit limits are usually around 3 to 5 times your monthly income. 


Good credit behaviour motivates issuers to offer such credit cards, meaning these factors, among other things, make you a choice candidate for pre-approved offers: 

  • your repayment history

  • the length of your credit history

  • the number of credit accounts on your report


Without a pre-approved offer, you can still easily obtain one of the two types of credit cards:

  1. Unsecured Card

This is the most common type of credit card, meaning that most people who have a decent credit score and a stable income tend to opt for it. Since it doesn’t require you to submit collateral or make a security deposit, it is called an unsecured credit card. 


This regular card allows you to easily access credit and go cashless. It also helps you to earn points and save with a whole variety of offers. Premium cards also get you access to lifestyle perks. 


  1. Secured Card 

This card is a reliable option if you cannot meet the requirements to be eligible for a regular card. So, it is a good option for freshers, those with a poor or zero credit history, and others without a steady income. 


You can avail of this card if you hold a security deposit or FD with a bank. This deposit acts as collateral, and you are basically permitting the card issuer to deduct your bill amount from your FD if you fail to make timely payments. 

Associated Fees and Costs

Apart from the applicable interest charges, here are a few other fees associated with credit cards you should know:

  • Annual Fees: Varies based on the card “band” and is charged per year

  • Joining Fees: Flat, one-time charge applicable for activating the card

  • Cash Advance Charges: Applicable interest charges plus a convenience fee for the facility to being able to withdraw cash from an ATM using the card

  • Late Payment Penalties: Upon failure to pay the minimum amount on your monthly bill, you will be charged a late payment fee based on your statement balance

  • Over-limit Charges: If your credit card lets you exceed the spending limit, you will be charged a hefty over-limit fee when you do so, starting at a minimum of ₹500

  • GST: Levied on annual fees, interest payments, and EMI processing charges 


These charges are highly dependent on your credit card issuer, and it is always best to cross-check them by calling your credit card customer care number.

Annual Percentage Rate (APR) on Credit Cards

While credit cards are infamous for having higher interest rates when compared to other types of consumer loans, this can be considered a small price to pay for the convenience they offer. You can expect to repay at an interest rate ranging between 14 to 53% per year, which card issuers then deploy monthly for ease of calculation. 


However, it helps if you remember that this hefty interest needs to be paid only if you don’t pay the entire amount owed in one billing cycle. If you pay the entire amount owed every month, you can use a credit card without ever having to pay interest. Else, you will be charged interest on the overdue balance. 


How to Get the Most Out of Your Credit Card

Here are some beneficial tips to keep in mind while using a credit card, meaning that you can hack your credit card usage to maximise efficiency:

  • Plan big transactions around your billing cycle to enjoy an interest-free period of up to 50 days from the date of your purchase

  • A few select credit cards offer personal accident and comprehensive travel insurance coverage, and choosing those can be helpful

  • A few credit cards offer complimentary lounge access at Indian airports and railway stations, as well as priority check-in, so look for them if you travel frequently 

  • You can earn discounts, cashback, and reward points to boost the value of your money


For all-around benefits, go with the One Credit Card, which offers you 5X reward points in the top two spending categories in a month, plus a range of other offers. In addition, you can enjoy zero annual and joining fees and easy management via the One Credit Card App, built on full-stack technology. Apply online to get started with a 5-minute onboarding process.