A credit card is a useful financial tool that allows you to make purchases without immediate deductions from your bank account. The credit card issuing bank grants you a credit limit, which is the maximum amount you can borrow.

Just like debit cards, credit cards are usable in storesand online. They even allow cash withdrawals from ATMs. The major difference lies in the payment structure. Instead of paying all at once instantly, you must settle your credit card bill every month.

Before getting carried away by the advantages, understanding credit card basics is crucial. This is because, if used wisely, they can become powerful tools for building credit, earning rewards, and simplifying your finances. On that note, this beginner's guide will help you learn how credit cards work, their features and benefits, associated charges, and other critical information you must know.

How do credit cards work?

When you make a purchase with a credit card, the card issuer pays the merchant on your behalf, and then you pay the issuer later. Each month, the issuer sends you a statement that clearly lists all transactions, the total amount you owe, and the minimum payment due. 

If you choose to pay the balance in full by the due date, you won’t incur any interest charges. However, if you only make the minimum payment or a partial payment, the remaining balance will carry over to the next billing cycle. This carried-over balance will then accrue interest as per the card's terms.

Why are credit cards a must-have? | Know the top benefits and features

As per the Reserve Bank of India, banks in India issued over 100 million credit cards as of February 2024. This popularity is driven by a range of features and benefits:

1. Easy UPI payments 

UPI is one of the most popular payment systems in India that allows instant transfers between bank accounts. In fact, in FY24 alone, India recorded approximately 131 billion UPI transactions. The IndusInd Bank Platinum RuPay Credit Card brings the convenience of UPI payments to your fingertips. By linking your card to a UPI-enabled app online, you can simply scan any merchant QR code to pay without the need to enter a CVV or wait for an OTP. 

Look at the additional benefits you get with this RuPay credit card:

Click on the credit card apply online option today and get started with IndusInd Bank!

2. Rewards and perks

Every purchase you make with a rewards credit card can be an opportunity to earn valuable points. You can redeemthese reward points against various benefits, including travel, gift vouchers, or cash credits. Some cards offer additional perks, like dining discounts, exclusive event access, and concierge services. This feature is especially beneficial for those who use their credit card regularly, as it maximises the return on every rupee spent.

3. Travel benefits

Credit cards often come with various travel-related perks that regular travellers can find extremely useful. For example, the IndusInd Bank Legend Credit Card offers world-class privileges on travel that make your journeymore enjoyable. Some benefits include:

• Access over 600 airport lounges worldwide through a complimentary priority pass
• Access concierge services that help with pre-trip planning, hotel reservations, flight bookings, and bookings for sports and entertainment events
• Get auto assist help for roadside repairs, emergency fuel supply, flat tire service, lost keys, battery service, and emergency towing
• Enjoy a 1.8% discounted foreign currency mark-up fee and make your international trips more affordable

4. Build your credit score 

Credit scoring models consider several factors, such as payment history, credit utilisation, and length of credit history. This means that if you use a credit card responsibly, you can significantly build your credit score over a period. Hence, after making purchases with your card, try to pay off the balance in full and on time each month. Also, keeping your credit utilisation low (usually under 30% of your credit limit) also shows good credit management and further boosts your score.

 5. Get financial breathing space through the grace period

The grace period on a credit card is a crucial feature that provides financial breathing space by allowing you to delay interest charges on purchases. Ranging from 15 to 20 days post your bill generation, this feature lets you use your credit card as a short-term, cost-free loan, provided you pay your balance in full by the due date. 

Credit card charges and fees you should know

• Annual fee: Many credit cards charge a yearly fee for access to the privileges and services they offer.
• Interest charges: If you don't pay off your balance in full by the due date, the card will start accruing interest on the unpaid portion.
• Late payment fee: Banks levy a late payment charge if you do not make the minimum payment by the due date.
• Over-limit fee: Spending beyond your approved credit limit results in an over-limit fee.
• Cash advance fee: Using your credit card to withdraw cash incurs a cash advance fee, often 2.5% to 3% of the withdrawn amount.
• Foreign transaction fee: Transactions made in a foreign currency or on foreign websites may attract a foreign transaction fee.
• Goods and Services Tax (GST): GST is levied on the interest, processing fees, late payment charges, and other service charges related to your credit card. The current rate is set by the Ministry of Finance, Government of India.

Unlock financial freedom | Apply for a credit card today

Credit cards, when used smartly, can be a useful financial tool. They allow you to buy now and pay later, make UPI transactions, enjoy exclusive rewards, and build your credit profile. However, to maximise these benefits, it's crucial to understand how credit cards work, the features they offer, and the associated charges. This knowledge will help you select the best credit card that aligns with your spending habits offers and manage credit card repayments responsibly.