Things to do after you get a Credit Card

Here is a list of things you have to do as soon as you get your credit card,

1. Remember your credit card is an unsecurd loan offerd by the bank to be used at your convenience with a grace period for repayment [usually upto 30 days only]
2. Most banks send a Welcome Kit with your credit card. This kit has information about using the card, safety instructions, payment procedure, interest charges and terms and conditions governing the card. Please take some time to go through the same
3. Sign on the back of the card as soon as you receive it.
   
4. Interest on Credit Cards can be as high as 3% to 4% per month. This is 36% to 48% per annum
5. Kindly remember, if you do not make your payment in full by the due date, interest is charged from the date of transaction on the amount remaining unpaid after the due date.

Use your credit card wisely. We recommend that you use and pay-off your monthly bills in entirety.

Disha Financial Counselling - Review and Approach or Not To

Disha Financial Counselling was setup by ICICI Bank with pressure from the Reserve Bank of India to help and educate loan borrowers. RBI has done an excellent job persuading ICICI since the latter has a huge portfolio of retail loans most of which is sold to consumers without properly educating them about the terms and consequences on default.

We have seen so many people borrowing on their credit cards, personal loans etc for events like the wedding or some other extravaganza, just to maintain their status. Once they have defaulted, the Interest Rate on their loans and Fees shoot up and it simply becomes impossible. Now should you approach Financial Counselor like Disha ?

Disha's main purpose is to help the default customers by extending their loan period or giving them one time settlement option etc depending on the customer profile. Disha counselor discusses your income and expense profile and will patiently listen to your woes. They help you plan your lifestyle until you are out of the debt trap.

What if I am in the worst case secanrio ?
The counselleor captures every debt / loan you have from a recognized financial institution in India from CIBIL. They have standard documentation format which runs into several pages and you have to carefully read and sign it. This implies you accept you are a defaulter, this is where many fraudulent borrowers who do not have the intention to repay run away.

However, assuming you stayed and are willing to Pay what you owe to the banks, Disha will then approach all the banks who have lent you the loans asking for rescheduling and affordable terms so that you hav a second chance. Most banks take long time to reply and some initially ignored Disha. But gradually under pressure from the RBI, banks are helping customers to clear their dues and become current again.

Do let us know your experience about Disha or Abhay Financial Counselling [Setup by the Bank of India].

Tips for Safe Usage

Here are some important tips which ones MUST carefully read and also follow for their own safety.

• You must always sign at the back of your credit card as soon as it arrives
• Memorize or note down your 3 digit CVV number and blacken it on the card
• Always ensure that your credit card is swiped in your presence. 5 Star Hotels or Clubs are no excuses.
• Store your card particulars in a safe place, separate from the card so that you can access this in the event the card is stolen.
• In the event of your card being stolen, inform the card company immediately and get the card blocked.
• Subscribe to SMS Alerts, if they are offered and work at all [HDFC Bank's Alerts are useless] ICICI Bank's alert are really real time. ICICI Bank sends alerts to your mobile immediately after every transaction.
  
• When your credit card expires, cut into atleast 3 pieces such that the magnetic piece is also cut at 3 different places.

The credit card companies [including SBI, HDFC, etc] in India are functioning really below expectations and if you decide to have one, you should be extremely careful as the regulator RBI and Finance Ministry are least bothered about citizens woes.

CIBIL and Credit Score in India

Credit History is a an alien term to 99% of the Indians. So lets explore the necessity of Credit History in India.

Prior to 2003, many businessmen[small / petty traders / contractors etc] including large business houses such as Essar, Jindals etc would borrow heavily from one bank and due to their mismanagement would default on loan payment @ that bank and go and avail a second loan at another bank without the knowledge of the first lender. This led to severe rise in Non Performing Assets of Banks, mainly PSU banks.

In 2002, all the banks came together to form a Credit Bureau which would share only the Credit[Any type of Loan or Credit or Money borrowed] information of borrowers indexed on the basis of IT - PAN number. Thus Credit Information Bureau of India Ltd [CIBIL] was born. In countries like the US & Canada, even defaulting on paying your Rent or Cell Phone Bill, you can get reported to the credit bureau as a defaulter.

Thus if you avail a loan in SBI @ Kashmir and if you default on the payment, you can't goto Mumbai and avail a loan in any bank because your data from SBI Kashmir is now reported to CIBIL.

Credit Lenders request for a copy of CIBIL report before lending. CIBIL report comes with a statistical score based on various factors and is known as CIBIL Score. This score is an estimate of an individual's creditworthiness. The score tells the risk of lending to a person. So be very careful the next time you default on paying something.

Calculation of Finance Charge by HDFC Credit Cards

Many of you still don't quite understand how Finance Charge is calculated on balance amount by credit card companies. I found that HDFC Credit Card is one of the better ones who explain it very clearly.

Here is a step by step guide on how Finance Charges are calculated.

• Assume you have Zero balance on your card to begin with.
• You now make a Biz Bazaar household purchases worth Rs 15,000 on April-10th. Then on 18th April you buy a Mobile Phone worth Rs 5,000. Lets say your billing cycle ends on the 18th of every month. So your April-18th credit card statement lists Total Dues as Rs 20,000 and Minimum Payment of Rs 1,000.
• Due Date for making entire payment or at least minimum payment is May-2nd.
• Lets assume you miss the May-2nd deadline. This is very bad to your credit history. Creditors think you don't even have the money to make minimum payment. Missing Minimum Payment will attract you additional fees known as Late Payment Fees.
  
• If you make minimum payment by May-2nd then their is no Late Fees in your next credit card bill.
  
• Assume you have not made a minimum payment by May-2nd and on 12th May you pay Rs 2,000.
• You purchase groceries worth Rs 1,000 on May-14th.
• On May-15th you make a payment of Rs 15,000
• Thus on your May18th Bill you will see the following,

1. Late Payment Fees of Rs 350
2. Interest on Rs 15,000 @ 2.95% pm [whatever your APR is] from 18th April to 12th May.
3. Interest on Rs 13,000 @ 2.95% pm from 13th May to 15th May
4. Interest on Rs 5,000 @ 2.95% pm from 18th April to 15th May
5. Interest on Rs 3,000 @ 2.95% pm from 16th May to 18th May
6. Interest on Rs 1,000[Fresh Purchase] @ 2.95% from 14th May to 18th May

Add Service Tax on Late Payment Fees + Interest.

Total outstanding = Rs 4,000 [Rs 3,000 from Previous Bill and Rs 1,000 Fresh Purchase] + Service Tax+ Late Fees + Interest = Rs 5,000 say.

Thus you are un-necessarily paying a hefty fees of Rs 1,000 to credit Card company on just Rs 4,000 outstanding balance.

Always pay at least minimum fees by due date. Still better, pay off the entire debt vy due date to avoid any FEES!!!!