What is a Credit Card?

If you’re wondering - what is a Credit Card - you’re in the right place. Let’s understand the definition, components of a Credit Card, how it works, the types of cards available and the top benefits. 

Credit Card meaning 

A Credit Card can be defined as a financial tool which allows you to make purchases on credit. The issuing bank sets the credit limit based on your income and credit score and you can make purchases up to the value of your credit limit.

How do Credit Cards work?

Credit Cards allow you to make purchases by borrowing funds from a bank or financial institution, which you repay later. Here's how they operate step by step:

• Card issuance: When you receive a Credit Card, it comes with a credit limit - the maximum amount you can spend.
• Making a purchase: Each time you use the Credit Card for a purchase or withdrawal, the bank covers the cost on your behalf.
• Monthly billing cycle: At the end of each billing cycle, you receive a statement showing all transactions made and the total amount owed.
• Payment options: You can choose to pay the full balance, the minimum payment or an amount in between, by the due date.
• Interest charges: If you don't pay the full balance, interest is charged on the remaining amount.
• Rewards and benefits: Many Credit Cards offer rewards, cashback or travel points based on your spending patterns.

Components of a Credit Card 

• Your card displays important information such as the issuing bank's name, type of card, card network, your name, a unique 16-digit number, the validity period, and your signature. 
• The card’s unique EVM chip generates a unique code for every transaction conducted using the card, thus boosting security.
• Your card has a unique Card Verification Value (CVV) for card authentification. The CVV adds an additional level of security.

How to use a Credit Card

• When shopping online, you need to add all details, including the CCV number, for authentication. You will also receive an OTP (one-time password) for further verification. 
• When shopping at offline stores, the cashier will swipe your card on a Credit Card machine. You need to input a PIN for authentication.
Alternatively, you can tap your card without requiring any additional authentication. 
• At the end of the credit cycle, be sure to pay your bill on the scheduled date to avoid being charged late fees and interest. 

Also Read :Credit Cards: Six reasons why you should have a credit card

Requirements of a Credit Card

To apply for a Credit Card, certain eligibility criteria must be met:

• Age: You must be at least 18 years old.
• Income: A stable source of income is required, with minimum income criteria varying across different cards.
• Credit score: A good credit score increases your chances of approval and better credit limits.
• Documentation: You’ll need to provide identification proof (like an Aadhaar card or passport), address proof and income proof (salary slips or bank statements).
• Residency status: Most banks require applicants to be Indian residents.

Types Of Credit Cards

1. Rewards Credit Cards 
These Credit Cards allow you to earn redeemable reward points every time you make a purchase. Typically, you can redeem points for a range of products. Alternatively, you can get a voucher for services such as dining out. 

Travel Credit Cards
These cards allow you to earn travel miles every time you book a flight or make a travel-related purchase. Travelers can redeem travel miles for flight discounts, car rentals and other travel-related expenses.

Also Read :6 Credit Card Mistakes to Avoid

Cashback Credit Cards 
You can earn instant cashback via this category of cards. The benefit of cashback is that it can be used to purchase any product or service at any physical or online destination across the Internet.

Co-branded Credit Card
If you love shopping at a specific eCommerce platform, eating at a particular restaurant, or travelling via a preferred airline, you can consider availing a co-branded card. You can earn cashback, redeemable air miles, and other types of rewards based on the brand and the service they offer.  

Advantages of using a Credit Card 

 

• When you effectively use your Credit Card, your credit score keeps growing. A credit score of 750 and above helps you score better deals on loan products.
• Every time you make a purchase using your Credit Card, you earn rewards in the form of redeemable points, cashback, fuel waivers and air miles. 
• You can access exclusive deals on shopping, dining out, travel and other experiences. 
• Instead of taking a Personal Loan for big-ticket purchases, take advantage of the Credit Card EMI (Equated Monthly Installment) scheme. You can access card EMIs at the point of sale during online or offline shopping. Choose EMI terms that align with your monthly cash flows.
• During emergencies, you have the option of withdrawing cash using a Credit Card. However, be sure to read through the fine print and pay it back as per your Credit Card cycle.

Also Read :6 benefits of using a Credit Card

Conclusion

Credit Card meaning in banking refers to a handy financial tool that you can leverage to buy products and services on credit. Axis Bank offers a spectrum of Credit Cards which are relevant to diverse consumer needs. These include co-branded cards and travel cards, among others. You can reap the benefits of reward programmes, cashback, air miles, airport lounge access and fuel waivers. Choose your card strategically to enjoy the benefits and enjoy financial stability.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision