A credit card is a financial instrument in the form of a plastic card. Several agencies are offering credit cards, based on fulfilling some basic requirements and supported by valid documents. The documents include PAN, Aadhar, bank details, satisfactory credit rating, and desirable paying capacity of the incumbents. A credit card may be obtained from banks both PSUs and private banks, and certain other financial organisations, after signing an agreement. Consequently, the concerned agency fixes an appropriate financial limit for availing credit or for cash withdrawal, which varies from individual to individual, depending upon one’s income and spending power. Indeed it is a new norm for convenient financial transactions.

Benefits of a credit card:

1. There is no requirement of any surety or cash deposit for getting the credit card.

2. It is easy and convenient to use a credit card for shopping anywhere and everywhere, at the prescribed business centres such as shops, malls, travel, online shopping, and bookings, etc., within the specified monetary limit.

3. Different service providers offer free payment periods varying from 45 days and more, without any charge.

4. Offer facility for part payment with due interest or agreed charge.

5. Depending upon the service provider, there may or may not be any entry or annual fees for using the credit card. In other words, some service providers offer credit cards free of charge, provided the incumbent pays dues in full and timely.

6. With a valid credit card in the pocket, one may need not carry a lot of cash, as it is possible to go for cashless dealings in the marketplace. That is shopping with a valid credit card is an attractive and tempting way of cashless shopping and travelling etc.

7. A credit card is an easy and sure way of payment, to overcome some emergencies such as hospitalisation, etc.

Precautions for effective use of a credit card:

1. Do not have too many credit cards scumming to tempting offers by different agencies. Of course, depending upon one’s resource, need, and manageability, one may have any number of cards, but experience suggests that up to-three cards might be well managed.

2. Try to have different settlement dates for payment, to effectively avail grace period in a staggered manner.

3. Make sure to pay dues in full and timely. This is because, with part payment, the interest is often levied on the full due amount. Thus this is the real trap and pinches in the successful use of a credit card.

4. Do not share your pin with anybody.

5. Take full advantage of the grace period, by using your cards by rotation keeping in mind the starting date for the payment cycle of your different cards, in the early days.

6. Do not leave your credit card with a stranger, being away from your sight. Otherwise, there could be a risk of cloning, leading to cheating by misuse of your card.

7. Take due precautions while using your card at an ATM, not to let your pin or other card details be noticed by others if present in the ATM chamber or through a hidden CCTV camera.

8. Keep changing your PIN as frequently as possible.

9. Redeem bonus points occasionally.

10. In case of loss of card immediately approach the service provider for stopping its use.

Risks in using a credit card

1. Indiscrete and overuse of a credit card, beyond one’s means, is the greatest risk.

2. Part of late payment of dues may be highly taxing through heavy interest charges.

3. Undue sharing of cards and more so the PIN may be very harmful.

4. For many transactions, especially for online shopping or use, a one-time password (OTP) is generated, which shouldn’t be shared with a stranger. Indeed this is one of the greatest risks ushering fraudulent transactions by people approaching you incognito, on behalf of the bank or other agency.

5. In case of loss or misplacement of the card, if you don’t inform the concerned agency immediately, it may lead to a huge loss, by its misuse.

Conclusion

In modern times of digitisation, credit cards offer a convenient way of cashless financial transactions, in general, and especially for people who are frequent travellers and for those apt to online financial transactions for mutual funds, bookings and domestic shopping. They also offer a convenient way to meet certain emergencies. Safe and disciplined use of a card is not only rewarding but also is an easy and convenient method of financial dealings.

The author is a blogger and former employer with the Government of India