When you apply for a credit card, what are the things that you take into consideration? Most people look for the offers, rewards and other benefits that they get with the card. That’s fine, since you must be aware of the perks that you get with the card. But do you know that all these benefits come with some limits and restrictions. And if you want to know what they are, you need to read the fine print and the terms and conditions of the credit card. If you just glance through the terms and conditions and rush right back to sign on the dotted line, you will not even know what you have agreed to while applying for the card.
These terms and conditions lay down the rules by which you and the card issuer must abide by. The card holder agreement is a legally binding contract between the two parties which outlines their obligations. So even if you do not read or understand the terms and conditions you will be responsible for everything written therein. So read the card holder agreement carefully before signing it. It will help in avoiding unnecessary charges, additional debt and also help you take care of your credit score.
To make it easy for you, we have listed down some important things that you must check in the long technical document before signing it.
Annual percentage rate (APR)
If you do not pay the balance in full and roll it over to the next month, you will be charged an interest on the balance. The actual APR that you will be charged may depend on your individual case. If you have a good CIBIL score you may be able to bargain for a lesser rate. But a person with a low CIBIL score is seen as a risky candidate, and hence charged a higher rate to cover up for that risk. Check what this rate is, and also whether different rates are applicable for different transactions. Find out whether the rate is fixed or variable.
Some credit cards offer a 0% APR period if you transfer your balances from previous cards. But you need to check out whether the 0% period is for transferred balance only or for new purchases as well. Also check what will be the APR after the period expires. Many a times if you do not pay the full balance within the interest free period, you will be charged a hefty amount once the period expires.
Find out what is the maximum amount that you can spend using your credit card. If you wish to improve your low CIBIL score, you must not spend more than 30% of this available limit.
The terms and conditions list down all types of charges that may be levied, and the criteria that you need to fulfil in order to avoid them. Check what is the annual fees and foreign transaction fee if any.
See whether there is any balance transfer fee, if you transfer the entire balance of one card onto another card. What is the cost involved in cash advances? Usually you are charged a fee of 3-5% if you withdraw cash using your credit card. The interest on cash advances is also set at a higher rate. So check the cash advance APR and see the time from when the interest starts accruing. What is the penalty charged if you exceed your credit limit or if your payment is late by a few days? If you know about these charges before you start using the credit card, you can surely avoid many of them.
Limits of perks
Sometimes credit card issuers offer a low introductory offer for the first 12 month. However, this benefit is withdrawn if you exceed your credit limit or if you do not make the minimum monthly payment on time. So find out the restrictions on the perks available.
Credit balance reporting date
Ask the credit card company as to when they report the balances on their card to the credit bureau. Often times, you pay the entire balance at the end of the billing cycle, but still you have a high utilization. That is because the billing date and balance reporting date is different. A high utilization rate may be responsible for a low CIBIL score. When you know the exact reporting date you can pay down the balance before that are reduce the credit utilization rate. This will help in improving your CIBIL score.
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