“We accept credit cards” hmmmm......... Lets see

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Accept credit card
“We accept credit cards”

“We accept credit cards” is a statement that you must have come across multiple times at various shops, grocery stores and other merchant outlets. This statement is generally accompanied by a few stickers (Visa/Master card etc). Credit cards have transformed the businesses and our lives to a great extent. A few years back there were just a handful of shops that would accept credit cards but today you will find that most of the shops accept credit cards. In fact, some shops (like those belonging to a big retail chain) not only accept credit cards but also supply credit cards. These credit cards entitle you for rebates when you use them at any of the stores of that retail chain.

With credit cards around, a lot of people have stopped carrying any cash with them or just carry a very small amount of cash with them. That means that any shop that doesn’t accept credit cards is potentially losing customers. In fact, this is one reason why almost every merchant accepts credit cards.

With the evolution of internet, credit card industry too took a new turn and up came ecommerce and e-shops. So, those stickers of “We accept credit cards”, moved on to the doors of internet shops. Thus came the era where almost every online-shop would accept credit cards (directly or indirectly). In fact, this was the premise on which the complete online-business industry was based. This is convenience at its best.

Fraud is associated with almost every financial instrument. So there came fraudsters too, who too said that “We accept credit cards”. These fraudsters use a lot of techniques to commit credit card related fraud. Some of them disguise themselves as online merchants who accept credit cards as mode of payment (the actual motive being extraction of critical credit card details). Others are people who work at merchant shops that accept credit cards. These fraudsters either clone the credit cards or just note critical information from them (and use that for online-shopping). Some other fraudsters lure innocent people into revealing credit card details in chat rooms. And then there are tech-savvy fraudsters who use computer programs/softwares/devices (called spyware) to spy on the people who use their credit cards for online payments. The spyware capture their credit card information and get it transmitted to the spy using internet.

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So a lot of merchants and service providers do accept credit cards but keep in mind that the fraudsters too welcome/accept credit cards. This is something you surely need to be careful about.

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What do you do with so many Credit card offers?

Credit card offer

So many credit card offers, what to do?

Just browse through the daily newspaper and you will be overwhelmed by the number of credit card offers advertised. Move around the town and you will find credit card offers being advertised everywhere. Same is the case is with television which seems to host a number of credit card offers too. So, the credit card offers are there everywhere. Why are there so many credit card offers? Well, quite simply because credit card business is a highly profitable business for the credit card suppliers.

In this situation, when there is no dearth of credit card offers, which is the best credit card offer?

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There is nothing like a best credit card offer, really. A better question to ask would be – ‘Which credit card offer is the best for me?’ The spending habits of one person are different from that of another person. Their living styles vary and hence their needs vary too. So for deciding on which credit card offer is best for you, you need to evaluate your needs vis-à-vis your lifestyle and your spending habits (and not go just by the recommendation of someone). For example, if you frequently travel by air, a co-branded airline credit card might be more suited to you than the general purpose one. These airline credit cards offer discounts, rebates and other kind of rewards when the credit card is used for making payments (the rewards are even higher when these credit cards are used for paying for the airline tickets or other airline products). Similarly, if you have a favourite retail store where you do a lot of your shopping, it would be beneficial to check if the retailer is a credit card supplier too and if there is a credit card offer that suits you. A lot of big retail chains do offer co-branded credit cards to their customers and these credit cards offer rebates/discounts etc when they are used for making payments at the retail store. As such, you get reward points for making payments at any place but the rewards are higher on the payments made at retail store. On similar lines, we have credit cards for gas stations and grocery stores too, which you can opt for if you have a favourite gas station or a favourite grocery store where you shop a lot.

So, if you look around, you will find a lot of lucrative credit card offers. However, this doesn’t mean that you enrol for all the credit card offers. You need to first evaluate your needs and rank them. Then you need to evaluate what all credit card offers suit your needs. And finally you can make your choice and go for a credit card offer that covers most of your needs and gives maximum benefits.

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What do you do when your credit card application is Rejected?

Credit card application
Rejection of credit card application

As time progresses, more and more people are joining the revolution called ‘Credit card’. Yes, it’s really a revolution. Now you don’t need to worry about how much cash you have in your pocket when you go shopping, just carrying this small piece of plastic (credit card) is enough to assure you of a good shopping treat. You can use your credit card to order things from the comfort of your home (on the internet). So the number of credit card applications seems to be on the rise. However, not every credit card application turns into a physical credit card. Some credit card applications get rejected too.
Let’s check why a credit card supplier would reject a credit card application when he has spent so much time and energy (and money) on wooing new customers.

One obvious reason for rejection of credit card application is human error i.e. the error committed by you in filling up the credit card application. These can be small mistakes like a wrong telephone number or wrong name or the postal code might be wrong. It’s normal to make mistakes, after all we are human being and no human being can be termed as perfect. Another strong reason for rejection of a credit card application could be missing mandatory information i.e. when you forgot to fill-in some mandatory information in the credit card application form. Sometimes, the credit card application could be rejected because the credit card application form has been filled-in in a handwriting that is illegible to the people processing your credit card application. At other times, the sales representative (of the credit card supplier) could have made a mistake in either depositing the form correctly or in guiding you in the filling of the credit card application form (newly hired sales representatives can make such mistakes).

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However, these human errors are just minor errors that can be corrected later on and hence the only impact would be in terms of the delay in receiving your credit card. The main and the most important cause for rejection of credit card applications is bad credit ratings i.e. a negative credit history. If you have been using other credit cards or if you have taken bank loans/mortgages in the past, you would have already build your credit rating. If you have been making your bill/instalment payments in time (and in the correct amount), you would have already acquired a good credit rating. However, if you have been irregular or if you have been defaulting on your payment dues, you would have developed a bad credit rating. This credit rating is calculated by credit bureaus who receive feeds from various credit suppliers. All credit card applications are checked for the credit rating of the requestor and if it comes up as negative, the application is rejected outrightly.

So, these are the 2 most important reasons for rejection of credit card application and you must pay heed to them (especially the credit rating).

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Credit card debt

Credit card debt
A problem called ‘Credit Card Debt ‘

Credit cards are no more a luxury, they are almost a necessity. So, you would imagine a lot of people going for credit cards. In fact, a lot of people posses more than one credit cards. So, the credit card industry is growing by leaps and bounds. However, the credit card industry and credit card holders are posed with a big problem called ‘Credit Card Debt’. In order to understand what ‘credit card debt’ actually means, we need to understand the workflow associated with the use of credit cards as such.

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Credit cards, as the name suggests, are cards on which you can get credit i.e. make borrowings (your credit card debt). Your credit card is a representative of the credit account that you hold with the credit card supplier. Whatever payments you make using your credit card are actually your borrowings that contribute towards your credit card debt. Your total credit card debt is the total amount you owe credit card supplier. You must settle your credit card debt on a monthly basis. So, you receive a monthly statement or your credit card bill which shows your total credit card debt. You must pay off your credit card debt by the payment due date failing which you will incur late fee and interest charges. However, you have the option of making a partial (minimum) payment too, in which case you don’t incur late fee but just the interest charges on your credit card debt. If you don’t pay off your credit card debt in full, the interest charges too get added to it. So your credit card debt keeps on increasing, more so because the interest rates on credit card debt are generally higher than the interest rates on other kind of loans/borrowings. Further, the interest charges add on to your credit card debt each month to form the new balance or the new credit card debt amount. If you continue making partial payments (or no payments) the interest charges are calculated afresh on the new credit card debt. So you end up paying interest on the last month’s interest too. Thus your credit card debt accumulates rapidly and soon you find that what was once a relatively small credit card debt has ballooned into a big amount which you find almost impossible to pay. Moreover, if you don’t still control your spending habits, your credit card debt rises even faster. This is how the vicious circle of credit card debt works.

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Low interest Credit Card

Low interest credit cards

A lot of people just look at low interest credit cards when they are looking to get a credit card for themselves. The credit card suppliers too advertise low interest credit cards more that any other kind of credit cards. However, should low interest credit cards be the only ones on your list when you are hunting for a credit card? Probably not. For some people, interest rate or the APR is probably the most important thing to look for when selecting a credit card. However, that doesn’t hold good for everyone. Low interest credit cards are good and should surely be on your list, but APR is not the only thing to look for.

Let’s start with understanding what an APR (annual percentage rate) is and where its importance lies. APR is simply the interest rate that is used to calculate interest on the balance in your credit account with the credit card supplier. There is no interest charge if you make the full payment of your credit card bill (by the due date). However, in case of a partial payment, you will need to pay an interest on whatever you owe the credit card supplier. The APR is backward calculated to get a monthly rate and the same is applied on your balance to calculate the interest for the applicable period.

That means, people who are not sure about being able to pay the full amount, every time, should surely look for low interest credit cards. A low interest credit card helps in reducing your total outgo by curtailing the interest you pay on your balance. So, low interest credit cards help in slowing down the rate at which your credit card debt builds up. Thus low interest credit cards are surely important for a particular group of people, as stated above.

Besides this group, there are others who don’t really need low interest credit cards. These people are capable of (and intend to) pay off their credit card bill in full every month. Their purpose in using a credit card is convenience and other benefits associated with the credit cards. So, be it low interest credit cards or high interest ones; it really doesn’t matter for them.

So the need for low interest credit cards is more felt by a particular group of people. However, even if you go for a low interest credit card, you need to pit the various low interest credit cards against each other (vis-à-vis the other benefits they offer) and then select the low interest credit card that is best suited to your needs.

So, first you need to evaluate whether you need to go only for low interest credit cards and then select the low interest credit card that fulfils your needs. After all, you don’t go hunting for a credit card everyday.

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Credit Card Debt Consolidation

Credit card debt consolidation

Credit card debt is a nightmare of a problem and unfortunately there a lot of people who face this today (and if others don’t pay heed, they might get trapped into credit card debt too). Credit card debt consolidation is generally regarded as the most important step in credit card debt reduction and elimination.

So what is ‘Credit card debt consolidation’?

Credit card debt consolidation is the process/strategy to consolidate debt from multiple credit cards into lesser number of credit cards (ideally one or two credit cards). Credit card debt consolidation is sometimes also referred as a balance transfer where you transfer your balance on one credit card to another credit card. Generally, the balance transfer (or credit card debt consolidation) is done from credit cards with higher APR to credit cards with lower APR. Credit card debt consolidation can also be achieved by going for a bank loan (at a lower interest rate) and using that towards paying the debt on the higher APR credit cards. This loan is then paid-back to the bank in the form of monthly instalments.

As you would have noticed, a lot of credit card suppliers and banks keep coming out with attractive offers for Credit card debt consolidation (or balance transfers). There is no dearth of 0% APR offers for credit card debt consolidation. However, credit card debt consolidation is a serious exercise and you must exercise caution so that you don’t get into deeper trouble. When going for credit card debt consolidation, you must properly analyze the offers from various banks and credit card suppliers. Check the time period for which 0% APR is being offered and also the APR that would be applicable after the lapse of that period. Generally, 0%APR is valid for a 6-12 month period only. So, if you are confident of paying back a considerable amount of debt in that period, this kind of credit card debt consolidation will work for you even if the APR (post 0% period) is a bit higher. However, if that is not the case, the long term APR is going to be the most important thing for you. If the long term APR is more than the APR for your current credit card, this kind of Credit card debt consolidation will be futile for you. Also, check processing charges etc before you actually go for balance transfer or credit card debt consolidation with another supplier/bank. Another good idea is to check with your current credit card supplier and see if they can offer a lower APR to you in order to help you in clearing off your debt (you would be surprised that they do oblige at times and hence eliminate the need for credit card debt consolidation).

It’s important that, with credit card debt consolidation, you also inculcate good spending habits; otherwise credit card debt consolidation would really be of no use to you.

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What is a Credit Card?

Credit card
What is a Credit Card?

Put simply, a credit card is just a small piece of plastic that easily fits in your wallet. Well, it’s not ‘just a piece of plastic’; it’s a very powerful piece of plastic which can be regarded as a compressed form of cash. We can define credit cards as a credit system that allows the consumer to borrow money on the fly from a bank or a financial institution and use it to make payments to the merchants.

In order to obtain a credit card, the consumer needs to fill-in an application form that is actually like an agreement between the credit card supplier and the credit card consumer. The credit card supplier approves the application form and provides the consumer with a small piece of plastic (i.e. the credit card). This plastic (or credit card) contains electronically encoded security information in the form of a magnetic strip (which is generally located at the back of the credit card). This information is used for authorising payments whenever the consumer uses the credit card. The consumer can use the credit card for shopping at merchant outlets or on the internet etc. Of course, this is subject to merchant’s capability to accept credit card payments. Accepting the credit cards is, however, not enough. The merchant should be able to accept payments made through the credit card provided by that credit card organization (of which you hold the credit card) i.e. VISA, MasterCard etc. You can also use credit card to withdraw cash from ATMs (automatic cash machines) – also known as cash machines or Day/Night machines.

There are eight main credit card organisations and most of them operate in a lot of countries world wide. These are American Express, Citi, Diners Club, Discover, JCB, MasterCard and VISA. Master card and VISA are probably the most popular ones. Then there are credit card suppliers or issuers who have tie-ups with these organisations and issue credit cards on their behalf e.g. you have various banks that issue VISA cards (like HSBC VISA card)

To make a payment using a credit card, the credit card has to be either swiped into special credit card processing machine (when shopping in person at shops) or the details of the credit card have to be entered on the merchant’s website (when shopping online). The credit card supplier sends across the bill for these transactions to the consumer who is then required to pay either the full amount or a partial (minimum) amount. If you pay in full, the credit card supplier doesn’t charge any interest on the amount you owe, otherwise the pre-agreed interest rate is charged. If you don’t pay even the minimum, you might land up with a late fee too. Moreover, the credit card supplier generally puts a limit on the maximum amount you can spend per month using your credit card.

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