A credit card is a payment card that allows its holder to make purchases on credit. It is issued by a financial institution, such as a bank, and allows the cardholder to borrow funds up to a certain limit, repayable with interest and/or fees. The cardholder can make purchases with the card and repay the balance over time, or make minimum payments while paying interest on the outstanding balance
What is credit card
A credit card is a payment card that allows the cardholder to borrow money from the issuer up to a certain limit in order to purchase goods or services. The cardholder must pay back the borrowed amount, along with interest and fees, to the issuer. Credit cards typically offer rewards and benefits to the cardholder and are widely accepted at merchants around the world.
How credit card work
Application: To get a credit card, you typically have to apply with a credit card issuer. The issuer will assess your credit history and financial situation to determine whether you are eligible for a credit card and, if so, what credit limit and interest rate you will be offered.
Credit limit: A credit limit is the maximum amount you can spend on your credit card. This limit is set by the issuer and may be reviewed and adjusted periodically.
Swiping the card: When you make a purchase with your credit card, you simply swipe the card at a merchant’s terminal or enter the card information online.
Authorization: The credit card issuer checks to see if you have sufficient available credit to make the purchase. If the purchase is approved, the merchant will receive an authorization code and you can complete the transaction.
Billing statement: At the end of each billing cycle, you will receive a statement from the credit card issuer that shows the purchases you made and any interest or fees that have been charged.
Repaying the debt: You have the option to pay off the entire balance of your credit card each month or make a minimum payment, which is a portion of the balance. If you only make the minimum payment, you will incur interest on the remaining balance.
Interest: If you do not pay off your entire credit card balance each month, you will incur interest on the unpaid balance. The interest rate is determined by the issuer and is typically a variable rate that can change over time.
It is important to use credit cards responsibly and make timely payments in order to avoid debt and maintain a good credit history.
Credit card vs debit card
A credit card and a debit card may look similar, but they are different in several ways:
Funding source: A debit card is linked to your checking account, so purchases made with a debit card are deducted directly from your account. A credit card is a line of credit extended by the issuer, which means you are borrowing money from the issuer to make purchases.
Credit check: To get a credit card, you typically have to undergo a credit check. A debit card does not require a credit check.
Rewards and benefits: Credit cards often offer rewards and benefits such as cash back, points, miles, and discounts. Debit cards typically do not offer these types of benefits.
Interest and fees: If you do not pay off your credit card balance in full each month, you will incur interest charges. Debit cards do not have interest charges, but some banks may charge overdraft fees if you spend more than the available balance in your checking account.
Fraud protection: Credit card issuers typically offer fraud protection, which means they will cover any unauthorized charges made on your card. Debit cards may offer similar protection, but the process for reporting and resolving fraudulent transactions may be different.
Building credit: Using a credit card responsibly and making timely payments can help build your credit history and improve your credit score. Debit card use does not typically impact your credit score.
In summary, a credit card can offer more flexibility and benefits, but also comes with greater risk and potential for debt if not used responsibly. A debit card provides direct access to your funds and can help you manage your spending, but does not offer the same rewards or benefits as a credit card.
Benefits Of Credit card
Credit cards offer a variety of benefits to cardholders, including:
Convenience: Credit cards allow for quick and easy purchases without the need for cash or check.
Rewards and points: Many credit cards offer rewards such as cash back, points, miles, or other incentives for making purchases.
Purchasing power: Credit cards allow cardholders to make purchases they may not be able to afford with cash or a debit card.
Fraud protection: Credit card issuers generally offer fraud protection, which means they will cover any unauthorized charges on the card.
Building credit: Using a credit card responsibly and making timely payments can help build a strong credit history and improve credit scores.
Emergency funds: Credit cards can serve as a source of emergency funds in case of unexpected expenses.
Travel benefits: Some credit cards offer travel benefits such as travel insurance, lounge access, and rental car insurance.
It is important to note that credit cards can also have drawbacks such as high interest rates, fees, and the potential for debt if not used responsibly.
Fraud protection on credit card
Credit card issuers generally offer a high level of fraud protection to cardholders. Here are some common fraud protection measures:
Monitoring: Credit card issuers use sophisticated fraud detection systems to monitor card transactions and identify any suspicious activity.
Alerts: Many credit card issuers offer alerts that can be sent to cardholders by email or text message in real-time when a suspicious transaction is made.
Zero liability: Most credit card issuers have a zero liability policy, which means that cardholders are not responsible for unauthorized charges made on their card.
Dispute resolution: If a cardholder disputes a charge, the credit card issuer will typically investigate the matter and, if fraud is confirmed, will take steps to reverse the charge and refund the cardholder’s account.
Encryption and security: Credit card issuers use encryption and other security measures to protect cardholder information and prevent fraud.
It is important for cardholders to report any suspicious or unauthorized transactions to their credit card issuer as soon as possible in order to maximize their fraud protection. Cardholders can also take steps to protect themselves from fraud, such as keeping their credit card information secure, regularly reviewing their account statements, and reporting any suspicious activity.
DOCUMENTS
Proof of identity: This can be in the form of a government-issued ID such as a passport, driver’s license, or national ID card.
Proof of income: This can include your pay stubs, tax returns, or bank statements to show your income level.
Proof of address: This can be a utility bill, bank statement, or a government-issued document that shows your current address.
Employment of Employment: Employment of Employment could be your Employer’s letter, PAN Card, Voter’s ID, or other government-issued ID which verifies your occupation and employment status.
Note: The exact list of required documents may vary depending on the bank or financial institution you are applying with, so it’s a good idea to check with them directly to confirm what they need.