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!!!!

Credit Card Question and Answers

User: Which is the better CC in which one can pay back in longer time duration with minimal interest on the borrowed amount?

CardBhai: Credit cards are not the best choice to borrow and interest costs are very high. If at all you want to borrow on an undecured loan you should go for unsecured personal loans. In fact if you can possibly give security such as financial assets (Life insurance policies, fixed deposit certficates, mutual fund units, bonds, jewellery, etc.) you will get the cheapest loan.

User: Which loan should one opt for - personal loan or loan on existing credit card ? In which one shall I get lower interest rate.

CardBhai:If you have a good repayment track record on your existing credit card and also have good provable income papers [IT Returns / Salary Slip] then personal loans will definitely be cheaper. Even otrherwise personal loans will normally be cheaper than loan facility provided on a credit card.

User: Bank refuses to take Cheque and acknowledge with a seal on the slip.

CardBhai: RBI has clearly directed that banks will need to cumplosorily give stamped acknowledgements if the cosnumer does not wish to use the drop box facility and wishes to deposit / make payment across the counter.

User: I have an outstanding of Rs 21,000 on my ICICI CC and about Rs 27,000 on my personal loan. Should I topup my personal loan to pay off my CC outstanding ?

CardBhai: Absolutely you should. Keep your CC off in the cupboard until you pay off your Personal Loan.

You can ask your question on CardBhai Forum.

Difference Between Debit and Credit Card

Many still don't know the difference between Debit and Credit Cards. Debit cards are most popularly known as ATM cards in India.

During the post-liberalization era, the Indian consumer had very less time in a Day and was looking for self banking. Thanks to K V Kamath who started the modern banking revolution - ATM, Online and Mobile Banking.

ATM/Debit Card:
Debit Cards are always tied to a Bank account [Savings or Current]. Earlier, Debit Cards came with a 4 digit PIN [Personal Identification Number] and you could use it to withdraw cash, view statements etc. They served as a Teller for your Bank account. These days, in addition to PIN and teller type ATM transactions, debit cards are endorsed by VISA or MasterCard and they can be very conveniently used like credit cards, but only if you have sufficient balance in your Account. Since you are using your own money, their is no APR [Annual Percentage Rate] or Interest.

Credit Cards:
Credit Cards are basically unsecured loans given to you by a Bank or a Financial Institution. Every credit card has a pre-set spending limit / credit limit. In India, the banks look at your Income Tax returns or your salary slip and fix the credit limit. Their is a payment grace period [upto 30 days] within which you have to payback the amount you have spent on your credit card failing which you will be charged an interest on the amount used. Depending on your credit card usage and payment record your credit limit will be raised.

CardBhai suggests always be very conservative when using credit cards.