Applying for a credit card can be a big decision that affects your financial health. There are many credit card options available in India, and understanding the key terms is crucial before you apply. If you’re not careful, you might end up paying unexpected fees or facing high-interest charges. To help you make an informed decision, here are some important credit card terms you should know before applying.<\/p>\n\n\n\n
APR is the interest rate you pay if you carry a balance from one month to the next. It tells you how much it will cost to borrow money using your credit card.<\/p>\n\n\n\n
The higher the APR, the more you\u2019ll pay in interest. To avoid this, try to pay off your balance in full every month.<\/p>\n\n\n\n
The grace period is the time you have to pay your bill after the billing cycle ends. If you pay off your balance in full during the grace period, you won\u2019t pay any interest on your purchases. However, if you already have an unpaid balance, the grace period won\u2019t apply.<\/p>\n\n\n\n
For example, if your billing cycle ends on the 15th and your payment is due on the 5th of next month, (this window is called grace period and grace period is usually 20 days for most credit cards) now you have 20 days to pay off your balance without incurring interest\u2014if you don\u2019t have any pending balance from the previous month.<\/p>\n\n\n\n
Your credit limit is the maximum amount you can borrow using your credit card. Exceeding this limit can result in extra fees and hurt your credit score. It\u2019s best to stay well below your credit limit to maintain a good credit score.<\/p>\n\n\n\n
Also, you need to understand your credit limit to have an optimum credit utilisation ratio. For example, if your credit limit is \u20b950,000, and you are spending\u00a0 \u20b940000, then your credit utilisation is 80%, which is way above the suggested utilisation of 30%. So, ideally, you should be spending around\u00a0 \u20b915000 from a credit card that has a limit of\u00a0 \u20b9 50000 to maintain a good credit score.<\/p>\n\n\n\n
The minimum payment is the smallest amount you need to pay each month to keep your credit card in good standing. It\u2019s usually a percentage of your total balance, but if you only pay the minimum, you will continue to incur interest charges.<\/p>\n\n\n\n
For example, if you owe \u20b910,000 and your minimum payment is 5%, you\u2019ll need to pay \u20b9500. But this won\u2019t reduce your balance much, and you\u2019ll be charged interest on the remaining amount.<\/p>\n\n\n\n
If you miss your payment due date, you\u2019ll be charged a late payment fee. The exact amount charged depends on your card issuer. Late payments can also increase your APR and hurt your credit score.<\/p>\n\n\n\n
To avoid late fees, set reminders or opt for automatic payments to ensure you always make your payments on time.<\/p>\n\n\n\n
A cash advance is when you withdraw cash from your credit card through an ATM or at a bank. While it might seem useful in an emergency, it\u2019s expensive:<\/p>\n\n\n\n
It\u2019s best to avoid cash advances unless absolutely necessary, as they can quickly lead to large amounts of debt.<\/p>\n\n\n\n
Credit cards often offer rewards like cashback, points, or travel miles for every purchase you make. Here\u2019s how rewards work:<\/p>\n\n\n\n