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Photo: K. Ananthan

IT PAYS TO BE PROMPT A credit card should mean short term credit

He has jet-setted across the globe, and paid all bills through the cards. Points are redeemed against air tickets, soft toys for his wife, handbags for mom and wallets for dad. One thing he has steered clear of. An unsolicited increase in his credit limit.

At the other end of the spectrum is Padmanabhan, who owned a solitary card with unlimited credit.

In a year, he had run up a debt of close to Rs. 2 lakh (including penalty charges and interest) purchasing luxury goods, and had no source to pay up. While Venkat used the card just to avoid carrying cash around, Padmanabhan swiped it liberally, without thinking about pay-back time. People like Padmanabhan, called ‘delinquent customers’ by the industry, form seven to eight per cent of India’s approximately 2.5-crore credit card customers.

Rajesh, senior vice-president of a company, has seen many colleagues fall a prey to credit cards. But, he uses it sensibly. “I got my first card in 1990. At one time, I possessed three cards, but I have never defaulted. And, I knew what I was spending on,” he says.

His advice to make your card earn? “Know your financial position before you swipe. That way, you get free credit for close to 40 days, and earn interest in your bank during that period too.” Another plus, he says, is that “while shopping, cards allow you to make a slightly more expensive choice.”

That ease is what R. Kumar, a banker, loves about cards. And, he advises you to discuss your billing cycle with your bank, so that the payment schedule falls after you receive your salary. That way, you don’t have to scrounge for money at the end of the month. Every bank’s website has a list of dos and don’ts regarding credit card use, and on the reverse of the statement too.

Some banks even send out mailers at least twice a year regarding proper usage. For instance, did you know that if you paid only the ‘minimum balance’, interest will be levied on the next month’s bill too? Sadly, many people seem to be giving these tips a miss.

This is one of the reasons why the bank has started a public interest campaign — ‘Tips to know your credit card better’, says Sachin Khandelwal, Head, Cards Product Group, ICICI Bank. “We want customers to be more careful. They need to understand that a credit card means short-term credit. It gives you immediate access to credit, but that does not mean you stretch it endlessly,” he says.

But, when you swipe cards in an emergency for a huge sum, banks do give you an option to pay in instalments. Or, for instance, when you just can’t pay back a credit card on your salary, go in for a personal loan.

Credit card companies normally charge 36-40 per cent interest. A personal loan comes at an interest of 18-22 per cent. That’s a huge amount saved. And, your credit rating does not suffer much damage too. You benefit from this, because ‘good’ customers enjoy many benefits such as interest as low as 1.99 per cent a month on dues, instead of the regular 3.15 per cent.

So, it pays to be punctual! Another option when you have unlimited credit, is to fix a limit on your spending. When you have to swipe for a higher amount, the bank verifies it with you before okaying it.

Twin benefits: Your spending is moderate, and in the case of a card theft, your loss is minimal.

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