As per RBI’s report, between July 2018 and July 2019, the total number of credit cards saw a hike of 10.1 million; the number of active credit cards reached a whopping 50.3 million. Conclusively, it can be said that each year more individuals are inclined to get a credit card. This, in turn, makes it important for credit cardholders to understand the functionality of this financial tool to make the most of it.

To begin with, they need to understand how it enables them to borrow money and complete cash transactions.

 How do credit cards operate?

Typically, each credit card comes with a pre-set cash limit within which cardholders can make transactions or purchases. Such a credit limit is set based on the financial standing and repayment capability of the credit card user, primarily depending on the individual’s income and CIBIL score.

Subsequently, they are required to pay their credit card bills that have been generated on the statement date. However, in the event of not repaying the outstanding credit availed by the payment due date, a cardholder will be liable to pay interest on the outstanding amount.

Credit cards are typically short-term credit facilities; wherein, cardholders are permitted to borrow money within a set limit. Likewise, borrowers ought to repay the credit availed within the allotted tenor.

Further, it must be noted that timely payment of credit card bills helps boost one’s credit score and ease the debt burden consequently. Also, individuals who opt for a credit card based on their spending habits are entitled to manage their credit card bills effectively with the help of accumulated reward points. Consequently, they would be able to repay your credit card debt easily.

Nonetheless, to further understand the working of a credit card, cardholders must become familiar with the various aspects of it. Additionally, it would help get a credit card that is suitable for their requirements.

Tips to understand credit cards better

A careful look at these would offer a fair idea of how a credit card works in general.

• Credit limit – It signifies the upper-limit up to which credit card holders can make purchases or transactions with the card. Subsequently, individuals with a healthy credit score and a stable source of income are more likely to avail a credit card with a substantial credit limit.
• Billing cycle – It is the period as per which transactions or purchases are billed for the monthly statement. Note that credit cards come with an additional grace period to help users easily repay the outstanding amount availed.
• Transaction fees – It often includes charges like balance transfer fees, foreign transaction fees, and cash advance fees. Hence, a clear idea of when and why these are levied on credit card transactions would help track expenses better and more accurately.
• Interest – In the event a credit card user is unable to repay the outstanding availed, they are more likely to attract a substantial interest on the due amount. To further understand the interest rate levied, cardholders should learn about APR, i.e. annual percentage rate in detail.

However, by opting for feature-rich credit cards like the Bajaj Finserv RBL Bank SuperCard, the user can convert their outstanding credit card debt into affordable EMIs to facilitate repayment.

• Unused credit – This signifies the available credit cardholders are left with during a billing cycle. By repaying their used credit limit, cardholders can replenish their credit card effectively.
• Minimum due – This is the minimum amount out of the outstanding that a borrower should pay to avoid penal charges. However, the unpaid outstanding amount will still be carried forward to the next billing cycle.
• Statement due date – Typically, it is the date by which credit card users must repay at least the minimum due to their credit card to maintain a fair credit history.

Consequently, fair knowledge about these helps to understand the credit card’s functioning. Further, it serves as a guide to how to read your credit card statement correctly. Get a credit card from reputed financers. Apply with a high CIBIL score.

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