What is a Credit Card? | How do Credit Cards work? | And Types of Credit Cards.

A credit card is a type of credit facility, provided by banks that allow customers to borrow funds within a pre-approved credit limit

A credit card is a plastic card that has a pre-loaded balance that the cardholder can use to make transactions and pay for them later. The card issuer will let you pay off the balance in full, interest-free, for up to 50 days from the date of payment. To prevent any fines, the cardholder can pay the minimum due amount on the total amount. The minimum amount owed could be anywhere from 5% to 10% of the total amount owed. The balance, however, will be carried forward to the next month and must be charged with interest set by the credit card company.

How do Credit Cards work?

Credit card companies provide credit cards to individuals who have a consistent income and credit score. Others can get a secured credit card against a fixed deposit. Every credit cardholder is allocated a credit limit based on their income. You can spend up to the credit limit and repay it on or before the due date. In most cases, the credit limit will be equal to 3 to 5 times of your net monthly salary. However, this varies from different banks.

Though a credit card is provided by popular banks, the payment gateway is facilitated by Visa, MasterCard and RuPay. However, these payment facilitators cannot fix other terms and conditions on the card. Features such as interest rate, minimum due amount, reward points, etc., are fixed by credit card issuers.

A credit card does not mean that you have more money, it only means that it gives you more time to pay for your purchases. Using a credit card means that you change the way you pay for your purchases. Every time you make a purchase on your credit card, you are in effect borrowing that money from the credit card issuer until you pay it back at the end of the month.

Types of Credit Cards

Credit cards designed by credit card companies do not carry the same features across all cards. Each comes with its own distinct features and benefits. They are created with respect to the needs of the individuals and spending habits. For example, for a person who spends more on entertainment activities such as movies, clubs, etc., an entertainment credit card would suit more than the other categories. In general, based on different spending habits, we can classify the credit cards into the following categories.

Shopping Credit Card:

Targeted at customers who spend more of their money for purchases such as clothes, jewels, groceries, gadgets, etc. There are also special credit cards designed for online shopping which offer special rebates on certain e-commerce portals. This type of credit card is best suited for housewives who have to manage all their grocery and other retail shopping.

Travel Credit Card:

Individuals who travel frequently may have to book flight tickets, hotel booking and need cash for international spends. Travel credit cards enable cardholders to do all of that and pay for them later. Complimentary lounge access at the airports and great amount of reward points are the perks of having a travel credit card.

Lifestyle Credit Card:

Lifestyle credit cards are generally premium credit cards that are best suited for the elite population who often indulge in dining out, make higher purchases, etc. These credit cards come with greater number of discounts, higher reward points and free concierge services. As the benefits are greater, the annual fee is also higher when compared to other credit cards.

Reward Points Credit Card

Reward points is one of the attractive features that credit cards offer and has become all the more reason to use a credit card for so many people. Understanding customer needs, most of the credit card companies have introduced credit cards that help you earn more reward points which can be redeemed against various gift items.

Cashback Credit Card

Much similar to reward points credit card, Cashback cards help you save on all your purchases. You can get a certain percentage of cashback on various spends such as dining, ticket booking, hotel booking, etc. Moreover, you can also use the cashback points to cut down your monthly credit card bill payment.

Fuel Credit Card

Commuting to office from home is unavoidable, and you will certainly be shelling out a sum for fuel expenses. Considering its importance, most of the credit card companies have created fuel credit cards that help you save more on fuel expenses. You can get up to 3% fuel surcharge waiver on these cards. Besides, there are also other benefits available on this card.

Women Credit Card

Working women in the country are on the rise. Realizing the importance of providing financial freedom to women, some of the credit card companies have come up with exclusive credit cards for women. Women who love shopping can make use of this credit card to obtain offers and discounts.

Business Credit Card

Every business entity will have to spend a huge amount of money for business operations. Making all business purchases such as machinery, inventory, etc., through a business credit card can help earning huge reward points which in turn can cut down the expenses. Moreover, a business credit card helps keep track of all the expenses.

Secured Credit Card

An individual must have a good income and credit score in certain cases to get approved for a credit card. For someone who does not have both can get easy approval on a secured credit card if you have a Fixed Deposit. The credit limit on this type of credit card is provided up to 80% of the FD amount.

Student Credit Cards

There are credit cards specially designed for students who pursue their higher studies. The eligibility criteria for this card is established based on father or guardian’s income. Students can use this card to purchase laptops, gadgets, stationary items, etc.