We love credit cards as they don't hurt our pocket immediately, and also provide time to repay the amount. Using credit cards are like availing shopping loan which can be paid within stipulated time with no interest.
If you miss your payment dates, than you must be ready to pay heavy interest and fees. When using credit card you may come across various terms which you may not be aware of. Here are terms simplified for your understanding.
1) Annual fee
Most of the banks charge annual free for holding credit cards, however some banks to attract customers offer no charge on first year. The charges completely depend on the bank and type of card you are holding.
2) Annual percentage rate (APR)
This is an interest rate that is charged yearly, which includes fees and costs on the outstanding amount on loan after due date.
If an individual pays the entire outstanding amount within the billing cycle, APR is not applicable and no interest need to be paid on the amount.
3) Billing cycle:
Credit card billing date is a date when your bill is generated. Credit card due date is a date which will be the last day to make payment of your credit card amount . These both dates are informed to you while issuing the card.
4) Balance Transfer
When an individual moves his outstanding credit card balance from one card issuer to another it is called Balance Transfer. This is done to reduce APR charges, usually from a high APR to a low APR issuer. However, this facility also involves payment of fees to the low APR issuer.
5) Credit Limit
Is the maximum limit which can be used from the credit card. Depending on the credit limit you utilize, it impact on your credit score as well.
Credit limit also depends on your repaying capacity. Do not overspend to enhance your credit limit.
6) Cash Limit
Credit limit and cash limit are both different terms. Cash limit is how much amount you can withdraw from you credit card. Both the limit differs and interest rates are high on the amount withdrawn from that particular day. This facility should be availed only in emergency situation.
7) CVV (Card Verification Value)
One can notice this at the back of his card, it is a 3 digit number. It stands for "card verification value" which is required while making online payments. It ensures the authenticity of the card.
8) Late payment fee
If you fail to pay the minimum amount before the payment due date, late payment fee is applicable in such cases.
9) Cash Back
This is reward program offered for certain period of time, these rewards are credit back to your card account. This features are applicable only if you pay you bills regularly.
10) Cibil Score
A good CIBIL credit score is extremely important to improve your credit worthiness, if you wish to avail a loan.
If one is having multiple credit cards, and want to cancel few, but has a total credit of Rs 2 lakhs on four cards. By cancelling the same the amount of credit is reduced and so is your CIBIL score.