What is Credit Card, Types, Working, Components, Benefits, Features, Eligibility and Documents Required

What is Credit Card?

A credit card is a payment card issued by banks and financial institutions that allows you to borrow money up to a certain limit to make purchases or withdraw cash. In India, credit cards are widely used to pay for goods, services, and online transactions. When you use a credit card, the bank pays the merchant on your behalf, and you agree to pay the bank back either in full or partially by the due date. If you do not pay the full outstanding amount, the remaining balance accrues interest. Credit cards are part of the “Cards Section” of the banking industry and play a key role in modern digital and cashless transactions. They help individuals manage short-term expenses, earn rewards, and build credit history.

Types of Credit Cards

India’s banking industry offers various types of credit cards to suit different needs. Below are some common categories:

Standard Credit Cards:

These cards offer basic features like a credit limit, monthly billing, and interest charges. They are suitable for individuals who want a simple, no-frills card for everyday purchases.

Reward Credit Cards:

Reward cards let you earn points, miles, or cashback on your spending. Points can be redeemed for flight tickets, shopping vouchers, or gift cards. Popular reward cards include those from HDFC, SBI, and ICICI that offer exchangeable points for every ₹100 spent.

Travel Credit Cards:

Designed for frequent travellers, these cards offer travel-related benefits such as air miles, lounge access at airports, discounts on hotel bookings, and waiver of foreign transaction fees. Examples include the SBI Air India Card and Axis Bank Miles & More Credit Card.

Premium and Elite Credit Cards:

Premium cards, like HDFC Infinia or SBI Signature, provide higher credit limits, access to exclusive airport lounges in India and abroad, concierge services, and better reward rates. They often carry higher joining fees and annual fees.

Secured Credit Cards:

For those without an established credit history, secured cards require a fixed deposit as collateral. The credit limit typically equals the deposit amount. Secured cards help build or improve credit scores. Banks such as IDBI and SBI offer secured credit cards against a fixed deposit.

Co-branded Credit Cards:

These cards are issued in partnership between a bank and a merchant or airline. For example, Amazon Axis Bank Credit Card or Flipkart SBI Card. They offer benefits specific to the partner, such as extra cashback on purchases from the partner’s platform.

Business Credit Cards:

Meant for small business owners and self-employed professionals, these cards separate personal expenses from business expenses. They may include features like higher credit limits, expense management tools, and business-related rewards.

Components of a Credit Card

A credit card has several physical and digital elements that allow secure and convenient usage:

• Card Number: A unique 16-digit number printed or embossed on the front. This number identifies your credit card account and is used for transactions.
• Cardholder’s Name: Your name appears exactly as registered with the bank. This ensures that your card is uniquely linked to you and helps prevent unauthorized use.
• Bank or Issuer Logo: The bank’s logo (for example, HDFC, ICICI, SBI) and the payment network logo (Visa, Mastercard, RuPay, or American Express) are displayed on the card.
• Validity Period: Printed as “Valid Thru” or “Expiry Date,” this shows the month and year until which the card is active. After this date, you must request a renewal from your bank.
• Chip (EMV Chip): A small embedded microchip stores encrypted data to process transactions more securely than magnetic stripes. In India, EMV chip cards are mandatory for enhanced security.
• Magnetic Stripe: A black stripe on the back of older cards that stores data. Over time, banks are phasing out magnetic stripes in favour of chips and contactless technology.
• CVV/CVC Number: The Card Verification Value (three-digit number) printed on the back of the card. It verifies that you physically possess the card during online or phone transactions.
• Contactless Symbol: Some cards display a wave-like symbol indicating that they support contactless payments. You can tap the card on a Point-of-Sale (PoS) terminal for quick transactions without PIN for amounts up to a certain limit.
• Signature Panel: A strip on the back where you sign after receiving the card. Merchants can cross-check your signature at stores to verify your identity.
• Issuer’s Contact Information: Customer care numbers or email addresses are printed on the back to help you report lost cards or seek assistance.

Benefits of Credit Card

Credit cards offer several advantages to cardholders in India:

• Convenience and Cashless Payments: You can make purchases anywhere Debit cards or cash may not be accepted. Online shopping, bill payments, and even booking travel tickets become simpler.
• Build Credit History: Timely repayments of credit card dues reflect positively on your CIBIL score. A good credit score helps in loan approvals and favourable interest rates.
• Reward Programs: Many banks offer reward points, cashback, or frequent flyer miles for every transaction. These rewards can be redeemed for shopping, travel, or bill payments, effectively reducing your overall expenses.
• Emergency Funds: In case of sudden expenses medical emergencies or urgent travel you can use your credit card to pay immediately and repay later.
• Safety and Security: Carrying a credit card is safer than carrying large amounts of cash. In case of loss or theft, you can block the card immediately. Fraud protection and purchase protection features safeguard you against unauthorized transactions.
• Interest-Free Period: Most credit cards offer a grace period of 20-50 days for purchases. If you pay the full billed amount within this period, you pay no interest.
• Fuel Surcharge Waiver: Some credit cards provide a waiver of 1-1.5% on fuel transactions. Given the rising fuel prices in India, this can lead to significant savings.
• Access to Cash Withdrawal: You can withdraw cash from ATMs using your credit card. While cash advances attract a high-interest rate, they can be helpful in genuine emergencies.
• Insurance and Protection: Premium credit cards include complimentary travel insurance, extended warranty on purchases, and concierge services. This offers peace of mind while travelling or making big-ticket buys.

Features of Credit Card

Beyond basic benefits, credit cards in India come with various features tailored to different lifestyles:

• Contactless Payments: With near-field communication (NFC) technology, you can tap the card on enabled PoS machines for quick payments under ₹5,000, usually without a PIN.
• EMI Conversion: Most banks allow you to convert high-value transactions into Equated Monthly Installments (EMIs) at competitive interest rates. This helps manage large expenses like electronics or travel bookings.
• Digital Statements and Alerts: Receive monthly e-statements via email or SMS. Banks also send real-time transaction alerts on registered mobile numbers to detect unauthorized use quickly.
• Balance Transfer Facility: If you have high-interest debt on one card or loan, banks let you transfer the outstanding balance to your credit card at a lower interest rate for a limited period.
• Lounge Access: Many premium cards provide free domestic and international airport lounge access. This includes complimentary refreshments, Wi-Fi, and comfortable seating while traveling.
• Add-on Cards: You can request add-on cards for family members. The primary cardholder can set credit limits for each add-on card and consolidate statements.
• Annual Fee Waiver: If you spend a certain amount in a year (for example, ₹1 lakh or more), banks may waive off the next year’s annual fee.
• Installment-free Interest: Some banks run promotional offers where purchases at select merchants can be paid in no-cost EMIs.
• Mobile App and Internet Banking: Most banks provide easy-to-use mobile apps and internet banking portals for viewing statements, paying bills, redeeming reward points, and tracking expenses.
• Dynamic CVV/CVC: A few advanced cards have an embedded display showing a dynamic CVV number that changes every hour. This adds an extra layer of security for online transactions.

How Does Credit Card Work?

Understanding how a credit card works is essential to using it responsibly:

Credit Limit Allocation:

When you apply for a card, the bank assigns a credit limit based on your income, credit score, and relationship with the bank. For example, a salaried individual with a steady income and good CIBIL score might receive a limit of ₹1-3 lakhs.

Purchases and Billing Cycle:

Every time you swipe, tap, or use your credit card online, the bank deducts that amount from your available credit limit. Banks usually follow a monthly billing cycle. For instance, if your billing cycle is from the 1st to the 30th of each month, all transactions made in this period will appear in the statement generated around the 1st of next month.

Statement Generation and Due Date:

Your bank generates a statement showing all transactions, total amount due, minimum amount due, and the due date (usually 20-25 days from statement date). You can choose to pay either the full outstanding amount or the minimum amount due.

Interest Charges:

If you pay the full outstanding amount before or on the due date, you do not incur any interest on purchases. However, if you pay only the minimum amount due, the remaining balance accumulates interest from the transaction date. Interest rates range between 18%-40% per annum, depending on the bank and card type.

Cash Advance:

You can withdraw cash from ATMs using your credit card. Cash advances attract a higher interest rate, which starts from the date of withdrawal (no interest-free period). The bank charges a cash advance fee, usually 2.5%-3% of the amount withdrawn.

Payment and Reconciliation:

You can pay your credit card bill through net banking, UPI, NEFT, cheques, or by visiting the bank branch. Once payment is credited, your available credit limit is restored, and you can continue using the card.

Reward Accrual and Redemption:

For reward or cashback cards, points or cashback accrue immediately upon transaction. You can redeem reward points through the bank’s portal or mobile app for gift vouchers, flight tickets, or statement credit.

How to Use Credit Card?

Using a credit card in India is simple, but it requires discipline:

• Activation and PIN Setup: Once you receive your credit card by post or courier, call the bank’s customer care number or use the mobile app to activate it. Set a four-digit Personal Identification Number (PIN) at an ATM or through net banking.
• Making Payments at Stores: Swipe or insert the chip into a PoS terminal. Enter your four-digit PIN or sign the receipt (if chip-and-sign is still used). At contactless terminals, simply tap for transactions up to ₹5,000.
• Online Transactions: While shopping online, enter your 16-digit card number, expiry date, and CVV. Banks often require an OTP (One-Time Password) sent to your registered mobile number or email for additional security.
• Mobile Wallets and UPI: You can link your credit card to mobile wallets (e.g., Paytm, PhonePe) or UPI apps. This allows you to pay using QR codes or UPI IDs, but keep in mind that some wallets may charge a convenience fee for credit card transactions.
• Cash Withdrawals: Visit an ATM, insert your card, select “Credit Card Cash Withdrawal,” and enter your PIN and desired amount. Remember that cash withdrawals are costlier due to high interest rates and fees.
• EMI Conversion: For large purchases, ask the merchant if they offer EMI on your credit card. If approved, the transaction is split into monthly installments, and interest is charged accordingly. Ensure you understand the processing fees and interest rate before opting for EMI.
• Bill Payments and Auto-Debit: You can register for auto-debit so that the minimum amount due or full outstanding is automatically deducted from your savings account on the due date. This helps prevent late payment charges and maintain a good credit history.
• Redeeming Rewards: Regularly check your reward point balance via mobile app or net banking. Redeem points for vouchers, gift cards, or statement credit, depending on your card’s reward structure.
• Maintain a Low Credit Utilisation Ratio: Aim to use no more than 30%-40% of your total credit limit. High utilisation may negatively impact your credit score.
• Record-Keeping: Keep track of all credit card statements and receipts. Compare the monthly statement with your records to identify any unauthorized or erroneous transactions.

Credit Card Eligibility

To apply for a credit card in India, banks typically look at the following criteria:

Age:

Applicants must be at least 18 years old. The usual age range for salaried individuals is 21-60 years, and for self-employed professionals, it is 25-60 years, depending on the bank’s policy.

Income:

Banks set a minimum monthly or annual income requirement. For salaried individuals, the minimum monthly salary might be ₹25,000-₹30,000 for a mid-tier card. Premium cards may require higher income thresholds. Self-employed individuals need to show proof of business stability and profitability.

Employment Status:

Salaried applicants need to have a stable job with at least one year of continuous employment, depending on the bank. Self-employed professionals must demonstrate a business vintage of 2-3 years with consistent income.

Credit Score (CIBIL Score):

A good credit score usually above 750 is important. Banks check your CIBIL, Equifax, or Experian scores to assess your credit behaviour and repayment track record. A higher score leads to a better chance of approval and higher credit limits.

Residence Status:

Only Indian citizens or Non-Resident Indians (NRIs) who can provide valid address proof in India and abroad are eligible. Foreign nationals may have additional requirements.

Existing Banking Relationship:

Existing customers of a bank who hold a savings account, Fixed Deposit (FD), or loan with the bank usually find it easier to get a credit card. A long-standing relationship and transactional history help in smooth processing.

Other Factors:

Some banks consider your educational qualification, digital footprint (social presence or KYC with online platforms), and average monthly expenditure. A higher monthly spend pattern may qualify you for better rewards or higher credit limits.

Documents Required for Credit Card Application

When you apply for a credit card in India, banks generally ask for the following documents. Present these in original for verification along with photocopies:

Proof of Identity (POI):

• Aadhar Card
• PAN Card (mandatory, as per RBI guidelines)
• Passport (for NRIs or if other documents are unavailable)
• Voter ID Card or Driving License (if PAN or Aadhar is not available)

Proof of Address (POA):

• Latest Utility Bills (electricity, telephone, gas) dated within the last three months
• Aadhar Card (can serve as both POI and POA)
• Passport or Rent Agreement (if staying in rented accommodation)
• Bank statement or Passbook with current address
• Driving License

Proof of Income (POI):

For Salaried Applicants:

• Latest Salary Slips (last 3 months)
• Form 16 or Income Tax Returns (ITR) of the last financial year
• Bank statements showing salary credits (last 6 months)

For Self-Employed Applicants:

• ITR for the last 2-3 years
• Profit and Loss Statement or Balance Sheet certified by a Chartered Accountant
• Business registration proof or Shop Act Licence (where applicable)
• Bank statements for the last 6-12 months

Photographs:

Passport-sized colour photographs (usually 2-3) as per bank specifications.

Employment Proof (Optional, for Some Banks):

• Appointment letter or Offer Letter (for newly employed individuals)
• Form 16 (for salaried employees)

Additional Documents (If Required):

• If applying for a secured credit card, you need to provide Fixed Deposit receipts or certificate.
• For NRI applicants, copies of passport, overseas address proof, and proof of NRI status (such as return air ticket or PIO/OCI card) may be required.