17,000 new credit cards issued by ICICI linked to wrong users

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Credit cards are an excellent tool of making transactions and accessing instant credit.

If used wisely and in a disciplined manner, it can help manage your cash flow, reduce the cost of purchases and avail various free lifestyle benefits.

Reward points, cash backs, discounts and other monetary benefits

Credit cards issuers offer reward points, cash backs or discounts on card transactions, which helps in reducing the overall transaction cost. The reward points earned can be used for buying merchandise or services from the partner brands of the credit card user. Many credit cards also allow card users to use accumulated reward points for buying flight tickets, make hotel bookings, purchase fuel or repay outstanding credit card bills, depending on the reward point program of the individual card. Many card issuers also extend free vouchers as joining or renewal benefits and other lifestyle benefits, including free access to lounges, complimentary club memberships, free movie tickets, etc. Some also waive off annual fee on spending beyond a threshold amount in a pre-determined period. As these benefits can vary widely, opt for one whose reward point program and other card benefits match your overall spend patterns the most and exceed the annual/renewal fee by the widest margin.

Build or improve credit score

Credit card transactions are considered equivalent to taking loans as the card issuer pays on the cardholder’s behalf. The latter has to repay the transaction amount by the due date of his credit card bill. Card issuers report these transactions to the credit bureaus, which then factor them while calculating the credit score. This allows credit cards holders to use their cards to build or improve their credit scores.

Adopting healthy financial habits like containing credit card spends within 30% of the total credit limit, making timely repayment of credit card bills and refraining from submitting multiple credit card applications within a short span can help steadily build or improve their credit scores over a period of time.

Availability of EMI conversions

Credit card users unable to pay their entire card bill by the due date can convert their entire bill or part of it into EMIs. Card issuers also allow cardholders to convert individual transaction(s) exceeding pre-specified threshold amounts into EMIs. The interest rate applicable for such EMI conversion options are significantly lower than the hefty finance charges of around 23%-49% p.a. levied on unpaid dues. The tenure of EMI conversions can range between 3-60 months depending on the card issuer and the facility opted for. EMI conversion option allow credit card users to repay unpayable credit card bill at lower interest cost and in smaller tranches as per the repayment capacity.

Pre-approved loan to tide over monetary shortfalls

Credit card issuers extend pre-approved credit card loans to select credit card customers having good repayment history and credit profile. Credit card loans offer one of the quickest disbursals amongst all credit options. Due to their pre-approved nature, processing of credit card loans does not require any fresh documentation. Most credit card issuers offer near instant disbursal or disburse loan amounts within a few hours of applying for a credit card loan.

The loan amount for credit card loans is usually a proportion of the sanctioned credit card limit. The credit limit is blocked up to the loan amount, which is steadily released as the card issuer start repaying the loan EMI.

Some credit card issuers also offer a variant of credit card loan to select card issuers wherein the loan amount is over and above the sanctioned credit limit. This allows cardholders to continue with their usual credit card spends.

Interest-free period to plan spends

Interest free period refers to the duration between the date of making the credit card transaction and the due date of its payment. This period usually ranges anywhere between 18-55 days. During this period, credit card transactions do not attract any interest cost or finance charges as long as they are repaid by their due dates. Credit cardholders can make the most from this interest free periods by planning their spends, especially the big-ticket ones, as per the available interest free period. Those with multiple credit cards with the dues dates spread across the month, can distribute their big ticket expenses across different cards to avail maximum interest free period on such transactions.

(The writer is Director, Paisabazaar.com, views expressed are personal)