Credit cards are really convenient for everyone, offering convenience, flexibility, and perks like rewards and cashback. However, they also have some complexities and lesser-known details. Understanding these hidden aspects is important for managing your credit card effectively and maintaining good financial health.
Let’s understand what are the hidden things!
One of the best benefits of credit cards is the interest-free period. This allows you to make purchases without paying interest if you pay off your balance within a certain time, mostly 45 to 50 days. However, many cardholders don’t know that this interest-free period isn't the same for everyone and doesn’t last forever.
The interest-free period only works for new purchases made during your billing cycle and ends on the due date.
If you still owe money from previous months, new purchases might not be interest-free. You’ll start paying interest on those right away.
Key Tip: Always aim to clear your entire balance before the due date to continue enjoying the interest-free period.
Your credit card statement shows a minimum payment due, usually about 5% of your total bill. It might feel good to pay just this small amount, but it can end up costing you more money in the long run.
When you pay only the minimum amount, the remaining balance is carried forward, and interest (typically between 24%-42% annually) is charged on the outstanding amount.
Over time, this can cause to a debt spiral where your balance grows rapidly due to compounded interest, and it becomes much harder to pay off your credit card.
Advice: Avoid making only the minimum payment. Try to pay your total outstanding balance each month to avoid accumulating massive interest charges.
Most credit card users are unaware of the credit utilization ratio, a hidden thing that can heavily impact your CIBIL score. This ratio is the percentage of your credit limit that you’ve used in a billing cycle.
Credit bureaus like CIBIL pay close attention to your credit utilization ratio when calculating your credit score.
If you use more than 30% of your credit limit, lenders might think you're in financial trouble. This can lower your credit score, making it harder to get good loans later.
Actionable Tip: Keep your credit utilization ratio below 30%. If your credit limit is ₹1 lakh try not to spend more than ₹30,000 in a month.
Credit card companies many times promote reward points, cashback, and travel miles to attract customers. These rewards are really useful, but did you know? there are some hidden drawbacks are there.
Many rewards programs have a time limit, so if you don’t use your points or cashback by a certain date, you lose them.
Some credit cards charge higher fees or interest because of their rewards, which can mean you spend more than you earn. Also, some rewards are only for things like dining or travel, which might not help with your regular spending.
Tip: Understand the fine print of your credit card’s rewards program, and choose a card that offers rewards in categories that match your spending habits.
Most credit card users focus on annual fees but forget to look out for other hidden charges that can add up quickly.
Late Payment Fee: If you miss a payment, banks can charge a big late payment fee, ranging between ₹300 and ₹1,000, depending on the amount owed.
Cash Advance Fee: Withdrawing cash from an ATM using your credit card attracts a high fee, mostly around 2.5% to 3% of the amount withdrawn.
Foreign Transaction Fees: If you use your card outside India, then expect a foreign currency markup fee, typically between 2-3%.
Over-Limit Fee: If you spend more than your credit limit, you will be charged a fee. This fee is usually 2.5% of the extra amount you spend.
Advice: Always read your credit card’s fee structure carefully. Banks often hide these charges in the fine print, so be aware of when and why you could be charged.
Many people don’t know about the balance transfer feature offered by credit cards. This allows you to transfer your high-interest debt from one credit card to another card with a lower interest rate.
If you owe a lot on one credit card, you can move that debt to another card with a lower interest rate or even 0% interest for a short time.
This can help you save on interest and pay off your debt more quickly if you use it wisely.
Hidden Aspect: Balance transfer offers can look great, but watch! After the introductory period, interest rates can go up a lot. Plus, there may be fees to transfer the balance, usually about 1-2% of the amount you move.
Some credit card companies have credit shield insurance. This insurance helps pay off your credit card balance if something unexpected happens, like losing your job, getting very sick, or passing away.
While it sounds good, this type of insurance mostly comes with hidden exclusions and fine print. For example, it might not cover the full outstanding balance or may exclude certain medical conditions.
Sometimes, the cost of this insurance is added to your credit card bill without you agreeing to it first. This can increase your expenses.
Tip: Make sure to read the policy document carefully before you choose it. Think about whether you really need this coverage based on your money situation and other insurance you may have.
Credit card companies usually give you about 30 days to make a late payment without charging a fee. If you pay during this time, you won't get a late fee, but interest will still keep adding up.
If you take out cash from your credit card, you start paying interest right away—there's no grace period for that. If you miss the time to pay your bill, you might get a late fee.
Plus, you could lose the chance to have an interest-free period on your new purchases, which means you’d end up paying a lot more in interest. It's a good idea to stay on top of your payments to avoid these extra costs!
Actionable Tip: Always aim to pay within the grace period. Set reminders or automate your payments to avoid missing deadlines.
Did you know you can negotiate the annual fees on your credit card? If you have been a loyal customer or if you meet certain spending criteria, banks may waive or reduce your annual fees.
Ask directly: Contact your bank’s customer service and inquire about fee waivers. Many banks will agree, especially if you have a good track record of timely payments.
Some banks automatically waive fees if you spend over a certain amount (e.g., ₹1 lakh per year). Check if your card offers this feature.
Having more than one credit card can be good. It can help keep your credit usage low and give you rewards. But it can also be difficult to manage, which might lead to spending too much.
Missed payments on even one card can hurt your credit score.
Keeping track of multiple due dates can be challenging, leading to late fees or interest charges.
Some people tend to overspend, thinking they have plenty of available credit.
Quick Tip: If you choose to have multiple cards, make sure to organize your payments carefully. Consider using a payment management app to track due dates and balances.
| Hidden Aspect | Explanation |
|---|---|
| Interest-Free Period | Only applies to new purchases if the previous balance is paid off. |
| Minimum Payment Trap | Paying the minimum amount increases debt due to high interest. |
| Credit Utilization Ratio | Keep it below 30% to maintain a good credit score. |
| Rewards Program Limitations | Expiry dates and hidden fees can reduce the value of rewards. |
| Hidden Fees | Late payment, cash advance, and foreign transaction fees add up. |
In conclusion, it’s important to know the hidden parts of credit cards to make smart money choices. They can be convenient and offer rewards, but they also come with high interest rates, hidden fees, and can tempt you to spend too much. By learning about these issues and using your credit carefully, you can enjoy the benefits without falling into traps. Knowing these details will help you use credit cards wisely and keep your finances healthy.
Hidden fees can include annual fees, late payment fees, foreign transaction fees, and cash advance fees. It's important to read the fine print to understand all potential charges.
High interest rates can make it expensive to carry a balance on your card. If you don't pay off your balance each month, the interest can quickly add up, leading to significant debt.
The credit utilization ratio is the amount of credit you’re using compared to your total available credit. Keeping this ratio low is important for maintaining a good credit score.
Yes, having multiple credit cards can help improve your credit utilization ratio and provide access to different rewards. However, it requires careful management to avoid overspending.
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