What is a Credit Card & How to Use It

Posted on Thursday, August 22nd, 2024 | By IndusInd Bank

Credit cards offer convenience, security, and a host of benefits, making them ideal for managing everyday expenses and large purchases. But what is a credit card? A credit card is a financial tool that allows you to make purchases now and pay for them later. It is a revolving credit line offered by banks like IndusInd Bank.

Let’s learn more about credit cards, their responsible usage, benefits, and more. 

Understanding Credit Cards and Their Usage

A credit card is a plastic or metal card issued by a financial institution that grants you access to a pre-approved line of credit. This means you can borrow money from the bank to make purchases or withdraw cash, up to your set credit limit. 

Along with the basics of credit cards, you should also know how to use them. 

A Guide on Using a Credit Card as a Beginner

1. You need to apply for credit card through a bank or financial institution.
2. Once approved and received, you can use the credit card for purchases. Each credit card comes with a unique credit card number, expiry date, and CVV code. 
3. When you make a purchase, you provide these details to the merchant. You can do this by swiping the card at a point-of-sale terminal or entering the card details online.
4. The merchant requests authorisation from your credit card issuer (the bank). 
5. Once authorised, the transaction undergoes processing. 
6. Then, the system adds the transaction amount to your credit card balance.

At the end of each billing cycle, you receive a statement detailing your transactions. You need to pay at least the minimum amount due by the due date to avoid late fees.

Now that you know how to use a credit card, let’s understand why using it can be a smart move. 

Benefits of Using a Credit Card

Credit cards offer several advantages that make them a valuable financial tool:

1. Convenience

One of the biggest benefits of a credit cards is the convenience they offer by allowing you to make purchases without carrying cash. Millions of locations worldwide accept them, both in-store and online.

2. Reward Points and Cashback

Credit cards offer reward programs where you earn points, miles, or cashback on purchases. You can redeem these reward points for travel, merchandise, or even cash credit. You can browse the bank’s website to learn how to use your credit card to accumulate these reward points. 

3. Security

Credit cards come with enhanced security features to protect you from unauthorised transactions. What’s more? You can also dispute charges if goods or services delivered to you are not as promised.

4. Building Credit History

Responsible credit card usage helps build your credit history. A good credit history will ensure you can get loans and other credit at favourable interest rates in the future.

5. Interest-Free Period

Most credit cards offer an interest-free period and require the card users to pay the outstanding balance by a predefined due date. This means that you can borrow money at no cost for short periods.

6. Emergency Funds

Credit cards provide a safety net during emergencies, which allows you access to funds when you need them most.

Components of Your Credit Card

To understand what a credit card is, it is crucial to know its various components:

1. Card Number: A unique 16-digit number used for transactions and identification.

2. Cardholder’s Name: The name of the person to whom the card was issued.

3. Expiration Date: The date after which the card is no longer valid.

4. CVV (Card Verification Value): A three-digit number on the back of the card used for security in online transactions.

5. Magnetic Strip/Chip: Contains the card’s data and facilitates transaction processing.

Some cards may come with additional components. For instance, the IndusInd Bank Nexxt Credit Card is an interactive Credit Card. Hence, it has various interactive elements to enable the cardholder to choose certain options (e.g. EMI tenure) and carry out specific transactions. 

Credit Card Terminologies You Should Know About

Here are some credit card terminologies to help you understand the meaning of credit cards in a better way: 

1. APR (Annual Percentage Rate): The annual rate of interest the bank charges on borrowed funds.

2. Credit Limit: The maximum amount you can borrow using the credit card.

3. Billing Cycle: The period between two statement dates during which the bank records the transactions.

4. Minimum Payment: The minimum amount you need to pay against the amount due to keep your account in good standing.

5. Statement Balance: The total amount due on your credit card at the end of the billing cycle.

6. Grace Period: The time between the end of the billing cycle and the payment due date. The bank does not charge any interest during this period if the balance is paid in full.

7. Cash Advance: A service that allows cardholders to withdraw cash. This feature may come with a higher interest rate and additional fees.

It’s not enough to know the definition of credit cards and related terminologies. Since it is a form of credit, it is important to know how to use a credit card responsibly. 

Tips on Using Your Credit Card Responsibly

You can maximise benefits and avoid debt with responsible usage of your credit card. Here’s how you can go about it:

1. Pay Your Bill on Time

Always pay at least the minimum amount due by the due date to avoid late fees and negative impacts on your credit score.

2. Keep Your Credit Utilisation Low

Try to keep your credit card balance below a certain percentage of your credit limit. This can help you maintain a healthy credit utilisation ratio.

3. Review Your Statements

Regularly assess your credit card statements for any unauthorised charges and to keep track of your spending. Alter your credit card habits accordingly. 

4. Avoid Unnecessary Debt

Use your credit card for necessary purchases and avoid spending beyond your means. Make full payments on your card balance whenever you can to avoid interest charges.

5. Monitor Your Credit Score

Keep a watch on your credit score and ensure that your credit card usage is positively impacting your credit profile. 

Also Read: First-Time Credit Card Applicant- 10 Things to Know Before Applying for Your First Credit Card

Conclusion

Credit cards, when used wisely, can be valuable tools for managing your finances, earning rewards, and building a strong credit history. By understanding what a credit card is, its components, and how to use it responsibly, you can take full advantage of these benefits.

IndusInd Bank recognises the power of credit cards and offers a diverse range of options to suit different lifestyles and financial goals. Whether you are looking for cashback offers, exclusive travel-related perks, or simply a convenient way to manage your everyday expenses, IndusInd Bank has a credit card designed to meet your needs. 

Apply now for a Credit Card with IndusInd Bank today to experience the convenience and benefits firsthand!

Disclaimer:

The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.