Things You Should Know About Credit Cards

Have you taken a close look at your credit card bill and found out how many reward points you have accumulated? If yes, have you ever wondered how, where and when you would be redeeming these reward points? In all likelihood, you may not be knowing about the redemption part, but relax, you are not the only one who does not know. Most of the cardholders keep on accumulating thousands of rewards points every year, not knowing when, where and how they would be redeeming them. In fact, majority of the cardholders are unaware about lot of things relating to their credit cards, simply because they have no time to dig out all the information or have never bothered to find out. Let’s look at some of  the important information which a cardholder needs to know.

Credit Limit
Banks usually set a credit limit for every credit cardholder and this limit is shown on the monthly statement together with the amount of available credit on the date of closing of the monthly statement. The cardholder is expected to limit his monthly expenditure upto the credit limit, which is the maximum amount that can be outstanding and owing to the bank on the credit account at any point of time. Any amount in excess of the limit has to be paid immediately and attracts fees and service charges.

For example, if the credit limit set by the bank for a cardholder is Rs 50,000, the cardholder cannot transact in excess of Rs 50,000 through the card at any given point of time. Such transactions include both withdrawal of cash as well as expenses charged to the card. Hence, a person with an overall credit limit of Rs 50,000 may have a cash limit of, say, Rs 20,000 and non-cash limit of Rs 30,000, in which case, he cannot withdraw an amount in excess of Rs 20,000 and charge expenses in excess of Rs 30,000. If the person exceeds his overall limit of Rs 50,000, he has to repay the excess amount immediately along with the specified overlimit fees and charges. An add-on card is also subject to the overall limit of the primary card and the transactions done through the add-on card are charged to the primary card account.

Reward Points
Banks ‘reward’ their cardholders with reward points for every purchase of goods or services made by them at designated merchant establishments. Cardholders can accumulate these reward points and, subject to the minimum number of reward points stipulated by the bank, redeem these reward points with any of the merchandise specified in the rewards catalogue of the bank. The bank  specifies the number of rewards points required for redemption against the items or services specified in the catalogue. It must be remembered that reward points have no monetary value and are neither convertible nor transferable and cannot be sold to others. Let’s look at the rewards catalogues of two of the largest private sector banks: ICICI Bank and HDFC Bank. ICICI Bank customers have to log on to www.imintpoints.com and choose the items from the catalogue to redeem their rewards points. Hence, a person can get a Philips DVD and Reebok Sunglasses for 14,000 rewards points, have a Sheaffer 22-carat ball pen for 5,600 points, get Omega Seamaster men’s watch for 2,67,700 points or even hire a BMW 5 series car for 40,400 points! Of course, since Rs 100 spent through ICICI Bank credit card fetches one reward point, you will have to spend a whopping Rs 2,67,70,000 to see that coveted Omega Seamaster on your wrist!

Now, let’s look at the HDFC Bank cards and the rewards catalogue. Its Silver card fetches one point for every Rs 200 spent, while its Gold card fetches one point for every Rs 150 spent. Other cards such as Platinum and Signature fetch 2 points for every Rs 150 spent. One can redeem the accumulated rewards points for the  items mentioned in the rewards catalogue. Hence, one can get a Hugo Dark Blue men’s perfume bottle for 5,960 points, or an Arrow gift voucher worth Rs 500 for 1,100 points, Taj Group hotels gift voucher worth Rs 500 for 1,190 points, Corelle dinner set for 5,880 points plus Rs 1,500 or even get a Tata Sky digicomp for 3,390 points.[PAGE BREAK]

Cash Advance Fee
When you withdraw cash from a bank’s ATM through credit card, you are required to pay a fee ranging from 2-3 per cent, subject to a minimum fee as stipulated by various banks. Apart from the transaction fee, the banks also levy finance charges ranging from 2.99-3.50 per cent per month on the amount withdrawn. The charges are levied from the date of withdrawal to the date of full payment. HDFC Bank levies a transaction fee of 2.5 per cent, subject to a minimum of Rs 300 per transaction, and finance charges of 3.25 per cent per month on the amount withdrawn. Hence, if you withdraw an amount of Rs 5,000 from the ATM with an HDFC credit card and repay it after a month, you would be liable to pay cash advance fee Rs 300 (minimum) plus Rs 162.50 as finance charges, i.e. a total of Rs 462.50 for one month. So, you should withdraw cash through credit card only in an emergency. If you have sufficient balance in your savings account, use your debit card rather than your credit card to withdraw cash.

Revolving Credit & Finance Charges
Normally, credit card provides interest free credit for 20 to 50 days, depending on the date of purchase and your billing cycle. So if you pay the credit card bill on or before the due date, you pay only the amount you have spent and don’t pay anything extra. However, if you choose not to pay the bill amount in full, you will have to pay finance charges on the outstanding balance amount.

The finance charge is payable from the date of transaction and not from the due date of the bill and is calculated on average daily balance method and apply to balances carried forward and to fresh billings. If the cardholder avails of the revolving credit facility and pays an amount less than the total amount due (as reflected in the monthly billing statement), the entire outstanding amount attracts finance charges and all new transactions too attract finance charges till such time as all the previous outstanding amounts are paid in full.

Let’s understand this with an illustration. Rakesh has a Silver credit card of HDFC Bank and his statement date is 18th of every month. Assume that he has paid all previous dues in full and does not have any outstanding amount in his credit card account. The transactions done by him on his credit card are given in the box alongside. It is obvious that Rakesh is paying a total amount of Rs 1,220.80 including late payment charges, service tax and the interest on the outstanding amount in his credit card account.

Overlimit & Late Payment Charges
Overlimit charges are payable on the total outstanding amount exceeding the credit limit specified by the bank. HDFC Bank levies an overlimit  charge of 2.5 per cent on the overlimit amount, subject to a minimum of Rs 500. Late payment charges are payable if the minimum amount due is not paid on or before the due date. The amount of late payment charges can range from a minimum of Rs 100 going up to Rs 1,000, depending on the amount outstanding. Now that you know, you are well-equipped to make the most out of your credit cards.