14-June-2016 written by : FSI-Team
You've often heard the saying, "There is no such thing as a free lunch". Absurd? Not really. Life has a way to even out the "freebies". You will end up hosting your hosts for lunch one day, or find a way of repaying their kindness. Hence, no free lunch. The proverb is all the more true when you step into the world of hard-core finances. If an offer of a free credit card, without the need for any documentation, seems tempting, re-think your instinct to own one. Or, at least be better informed about this "free" bargain before you decide to line your wallet with a shiny new card.
The salesman needs to close a sale, but you, as the purchaser, need to be aware of the most important terms and conditions that govern your use of the card. Most of us are too caught up with the idea of this extended financial aid that seems to be so convenient to use and maintain, till we are blindsided by the sudden unraveling of charges against our card. Not only are we caught by surprise, but at a later stage we become painfully familiar with the damage of not honoring these charges. If you've heard of CIBIL, you’ll know it is the oldest credit bureau in India that collects credit history data on individuals and entities. They crunch out a 3-digit score that tells all how good you are in handling debt. You may not come across a free CIBIL score online, but if you create an account on its online website, you'll come to know more about your CIBIL score calculation and where you stand in the credit rating market, at a nominal price.
Create your own CIBIL consumer login today and see whether there is a need to improve credit score. Generally, a score less than 700 is one that needs improvement, since this is the standard that most banks will consider when deciding whether you are eligible for a loan. Often, it is not easy to get loan for low CIBIL score. If you've never availed of loans in your life, but have owned credit cards, and still find yourself on the lower side of 700, then there might be reasons for the bad score. These reasons may have to do with how you have maintained your credit card, or charges that you have refused to pay because such was not clear to you at the time you took the card.
Make sure you are aware of what you are signing up for every time you think of owning a credit card
Free for the first year, then no more: The free card is often a lure to make you take the card. Credit card companies think that eventually you will fall for the bait and use your card. When you do so, they wait for the interest to rake up, so they earn through your ownership of the card. If you still do not use your card, they still make money from the second year, from annual maintenance charges, which can range between Rs. 500 – Rs. 3000.
Don't clear you outstanding, face the music of "interest" – If you just clear the minimum amount due each month, the rest of your outstanding expenses start accruing an interest of 3% every month.
Cash withdrawals come with a cost attached: There is a direct charge of 2.5% on any cash withdrawal right from Day 1 of the withdrawal. This can grow to 24% in a year, if you choose to ignore to pay the interest in all billing cycles in a year.
Cross the limit, pay the price: Your credit limit is the maximum amount that you can draw from that particular card. If you don't follow this guideline, you are penalized with a fee of Rs. 500 or 2.5% of the overlimit amount, whichever is higher.
Offshore transactions are expensive: The online world has shrunk trade boundaries, however, there is a transaction cost attached to every overseas purchase you make. This is about 3.5% of the amount that you pay.
Delinquency charges: in the event of you not paying the dues within 90 days, you start accumulating delinquency charges. This will have a direct impact on the total outstanding amount owed to the credit card company.
Want another statement, will have to pay: Every monthly statement is free, but requests for duplicate statements come at a price of Rs.50 – Rs. 100.
Petrol surcharges: If you use your card to buy petrol, be ready to pay a surcharge up to 2.5% for transactions below Rs. 400 and above Rs. 4000.
Service tax factored in transactions: Service tax on service charges of 14% will impact all credit card transactions.