Understanding Credit Cards
Credit cards in India often come with higher annual percentage rates (APRs) compared to other forms of consumer loans. Interest charges on unpaid balances typically apply about a month after a purchase is made (unless there’s an introductory offer of 0% APR for an initial period). If there are unpaid balances from the previous month, no grace period is given for new charges.
As per legal requirements, credit card issuers must provide a grace period of at least 21 days before interest starts accumulating on purchases. Therefore, it’s advisable to clear balances before the grace period ends. It’s also important to determine whether your card issuer calculates interest on a daily or monthly basis; the former results in higher charges until the balance is settled. This distinction is especially crucial when contemplating transferring your credit card balance to a card with a lower interest rate. Accidentally switching from a monthly accrual card to a daily accrual one might negate the benefits of a lower rate.
Individuals in India with poor credit histories often consider secured credit cards, which demand cash deposits and provide corresponding credit limits.
Types of Credit Cards
Major credit card providers such as Visa, Mastercard, Discover, and American Express are commonly issued by banks, credit unions, and other financial institutions in India. These cards attract customers by offering rewards like airline miles, hotel room bookings, gift certificates, and cashback on purchases. They are commonly referred to as reward credit cards.
To foster customer loyalty, many national retailers in India issue branded versions of credit cards with the store’s name displayed on the card. While store credit cards are easier to qualify for than major credit cards, they can only be used at specific retailers. These cards often provide benefits such as discounts and special sales. Certain retailers also offer co-branded Visa or Mastercard credit cards that are usable beyond their own stores.
Secured credit cards in India require a security deposit and offer limited credit lines equivalent to the deposits. These deposits are often refundable after demonstrating responsible card usage. These cards are sought after by individuals in India with limited or poor credit histories.
Similar to secured credit cards, prepaid debit cards in India require a security deposit, aligning the available funds with money in a linked bank account. Unsecured credit cards, on the other hand, do not require collateral or deposits. They usually offer higher credit limits and lower interest rates compared to secured cards.
Building Credit History with Credit Cards
Responsible use of both regular and secured credit cards in India can aid in building a positive credit history, facilitating online purchases and reducing the need for cash transactions. Since both types of cards report to major credit agencies, responsible cardholders can enhance their credit scores and potentially upgrade to regular credit cards, especially in the case of secured cards.
Building a strong credit history in India involves making timely payments, avoiding late payments, maintaining credit utilization below the limit, and upholding a low debt-to-income ratio. Responsible purchases and punctual payments contribute to an improved credit score, making the individual more appealing to other lenders.
Obtaining a Credit Card with No Credit
Establishing a credit history can be challenging in India without prior credit experience. One way to start is by opening a secured credit card, where you borrow against a deposit you place. This enables lenders to assess your spending and repayment patterns.
Another approach is to become an authorized user on an established credit account, such as a parent’s or spouse’s. Their credit history will reflect on your account, adding longevity to your credit report. However, it’s essential to ensure that their credit habits are sound, as their choices also impact your credit.
Fixed or Variable APRs
Many credit cards in India offer both fixed and variable annual percentage rates (APRs). To determine the type of APR applicable to your credit card, refer to the cardholder agreement. Card issuers are required to disclose this information. In case of a change in a fixed APR, consumers must be notified.
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