Have you ever been blacklisted by a bank for not paying your credit card dues?
Do you know how to clear your name from this list? Do you know the consequences of being blacklisted?
Is the banking ombudsman genuinely of any help to credit card customers?
Do they take up your problem with the respective banks?
Do you know your responsibilities as a credit card customer?
In a chat with readers finance expert Harsh Roongta answered these and many more queries related to problems faced by credit card users.
Question: Dear Mr Roongta, this happened two years ago: I dropped a cheque in the Bangalore branch of my bank but the bank misplaced the same and it went to Chennai and hence they charged me penalty against delayed payments. In spite of lawyer notices, I refused to pay stating that it was the bank that was at fault. The bank had hot listed (black listed) my name. I came to know about this hot list as two banks declined fresh credit cards. How to get my name removed from this hot lists. I have a very good credit rating with four other credit cards (Citi, SCB ,HDFC etc). How does this hot list affect me?
Harsh Roongta : I suggest that you take this extremely seriously, since hotlisting in the credit bureau will affect your chances of getting any loan in the future. File a complaint with the banking ombudsman (http://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=159) and insist on getting an official letter declaring you as a non-defaulter in this case.
Question: I hold a credit card from HSBC. I am regularly paying my outstandings before due date. One month when I had to go away to my hometown, I presented a cheque which dated as 27th February whereas my due date was 28th February. I dropped this cheque by 24th February itself as I was going away. But HSBC did deposit the cheque on 23rd itself and bank returned cheque saying post-dated with a penalty of Rs 100...again these HSBC guys charged me Rs 350 + service tax for postpaid cheque. Later on my insistence they waived off all the charges but I was made to pay Rs 100 to the bank for post dated cheque...My question is why are they presenting the cheque without waiting for 2-3 days when my due date was on the 28th?
Harsh Roongta :I think as consumers we should also have realistic expectations of what the bank can deliver. Almost all banks provide bold display print on their bills to not put post-dated cheques in the collection boxes. Obviously given the volumes it is not possible for the banks to segregate current cheques from post-dated cheques. One suggestion would be to provide standing instructions for debiting a specific bank account on due date. Most credit cards provide this facility.
Question: May I know what's the profit the bank is going to make by issuing credit cards if the customers are paying the outstandings regularly with out any delay?
Harsh Roongta: Not too much. They make a small commission on the amounts spent by you at merchant establishments where you use the cards. Also there is income by way of fees, charges and interest should you happen to delay any payment.
Question: I have taken a BT (balance transfer) scheme of SBI favouring Citibank but the cheque issued got returned without clearing. Now SBI maintains the cheque is cleared whereas Citibank maintains the cheque has been returned. But I have been charged for the amount so what options do I have as a customer?
Harsh Roongta: If you have deposited the cheque with Citibank, then the cheque should have come back to you. If not, clearly Citibank is responsible for proving that the cheque has bounced. If the physical copy of the cheque has indeed come back to you, then the problem lies with SBI.
In either case, file a complaint with the concerned card issuer and if not addressed to your satisfaction in 2-3 weeks you should approach the banking ombudsman (http://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=159). For the SBI card, you will have to file a general compliant on the RBI website as it is a non-banking finance company, NBFC, and is not covered by the banking ombudsman.
Question: Is the RBI Banking Ombudsman known to genuinely help customers by taking up their issues with the banks?
Harsh Roongta: It is a statutory body which can and does give directions which are binding on Indian banks. Please read the decisions given by them in the recent past. It is a very effective remedy. Just the mention of going to the ombudsman galvanises the banks and, in most cases, the queries are resolved at the bank level itself. Unfortunately, the banking ombudsman scheme does not cover NBFCs like SBI cards.
Question: I had a credit card and used it to the maximum limit. I was paying all my dues fine and on time. But one fine day I felt that the bank has earned enough because of me and stopped paying. After a period of time, the bank barred the payment facility from my card as I was overdue.
Now after about two years the bank is still sending me statements despite me telling them to cancel my card and today the late payment fee and the interest has multiplied many times and the amount due is more than Rs 4 lakhs. Tell me if the bank will pull me to courts? What if I am not in india or if I change my residence which the bank will never know. Please advice me as to how I should save my head?
Harsh Roongta:I would advise you to settle up with your bank. Your sins of non-payment will follow you in this digital age where you can and will be traced no matter what you do.
Question: I had closed a Stanchart card in 1996 after making a full and final settlement due to a fraudulent and disputed charge on my card. Since this was settled Stanchart has still listed me as a defaulter how can I get my name cleared from the defaulters' list?
Harsh Roongta : If the charges were indeed disputed and you have proof of that dispute, then I suggest you approach a good lawyer specialising in tort to take up your case.
Question: What is a Credit Bureau? Does it track everybody or only those who default on their loan payments? How is the tracking done (e.g PAN) etc?
Harsh Roongta: Credit Bureau is the banking equivalent of Orwells Big Brother which keeps track of all your repayments -- good or bad. Several things are used to match up records including PAN, date of birth, name variations, etc.
Question: How do I protect myself from credit card payment recovery if my friend had spent on my card and willing to accept it on paper. Is it possible to have legal paperwork and ask the bank to chase the friend if he defaults in future? And what is the procedure for recovery?
Harsh Roongta : You are responsible for your credit card. The bank can and will seek recourse to you. Whether you recover the money from your friend or not is your outlook only. Credit cards require responsible handling and this lapse will probably make you more careful in the future about allowing other people to use your credit card.
Question: I don't have any outstandings on my credit card. I want to close the card during its validity period. How to go about it?
Harsh Roongta : Cut your card into 4 pieces and send it under acknowledgement due post to the address given in the billing statement.
Question: My credit card number and pin number was taken by one of my staff and he lost the details. Can they do online purchasing or payments through my credit card? What shall I do now? I have tried reaching the bank but they are not responding.. they asked me to send a hard copy to the bank requesting the same.. but in the meantime if somebody uses my card it will be a huge loss for me.. how to go about on this?
Harsh Roongta : Immediately call up the bank and report it as a lost card so that they can hotlist the card. Take an acknowledgment number for your hotlisting request so that your liability ceases from that time onwards. Most banks will however charge you a card replacement fee for issuing a new card.
Question: Could a bank use abusive language for recovering their dues?
Harsh Roongta: As per voluntarily adopted guidelines by the banking industry, this cannot be done.
Thursday, May 10, 2007
Wednesday, May 9, 2007
Credit card problems? Here's help
Do you know the interest rate charged by your credit card company on your purchases?
When do they charge interest and when do they levy a late fee?
Is there any service tax applicable on the goods that you purchase using your card?
Do you know how to go about filing a complaint against a credit card company for harrassment?
Can these companies employ illegal means to recover their dues?
Are you liable to pay your spouse's credit card dues in case of her/ his sudden demise?
In a chat with readers on May 8, Get Ahead personal finance expert Harsh Roongta answered these and many more queries related to credit card problems customers face.
For those of you who missed the chat, here is the transcript.
Question:, My wife was having SBI card which she got from SBI bank in PUNE. Afterwards whenever we had any inquiry, none of the bank employees were ready to help us. This is ridiculous for me as the bank which is giving me the card is unable to help us in case of any inquiry. What they say is you call the helpline number which is flooded with call and we have to hold our call for half an hour and we are paying for that.
Harsh Roongta answers, That is an understandable issue as the card is issued by a separate organisation which is a joint venture between GE and SBI, though the brand on the card is that of SBI alone. Your confusion is understandable though as all these are only technical matters as far as you are concerned. However, I am afraid, in your specific case you have no other alternative other than the help line number or the SBI cards website to lodge your complaint or make your query.
Question, What is the interest rate generally credit card companies levy if I my due after 52 days?
Harsh Roongta answers, Interest rates on most credit cards vary between 27 per cent to 40 per cent per annum (assuming you have paid the minimum due amount by due date). If you have not paid anything by the due date, then you will have to pay the late payment fee as well as overdue interest which will also be at a higher rate.
Question:Sir, I was using ICICI Bank's credit card. They have debited an amount of Rs 6,000 against the payment of MTNL telephone bill from my credit card. But I don't have any MTNL phone. After making lot of phone calls to their Hyderabad office, they are unable to give me any satisfactory answer. I have stopped all the payment for the same. Now, tell me what should I do to solve this matter.
Harsh Roongta answers, Please lodge an official complaint on the ICICI Bank website. If your query is not resolved within 2-3 weeks to your satisfaction, you should complain to the banking ombudsman in your area. The list of banking ombudsman is available on www.rbi.org.in
Question: Is there any service tax applicable if I buy any electronic goods through my credit cards?
Harsh Roongta answers, There is no additional tax on purchase of the item itself. However, if you do not pay the entire amount due on due date, then you will need to pay interest on the amount rolled over and on this interest there is a service tax chargeable.
Question: I am using the credit cards of almost 10-12 banks since last 7 years and have never faced any problem of any kind. Even you can say I have enjoyed a lot of offers, discounts, bonus points etc. Don't you think the main problem is with the credit card holder as they can't keep the proper record and timely check up of credit card outstanding?
Harsh Roongta answers, You are right, Kapil. Provided you keep proper records and pay your dues on time (do not use credit cards to borrow money), credit cards can be a real boon and convenience. However, if you are of the kind who cannot control your spending on impulse buys, then you should probably not use credit cards at all.
Queston:I did an online transaction with my credit card. First time before the transaction was over it threw some error. So I did it the second time. Now the same amount is coming to my bill twice. I have complained. They told you pay the bill amount minus the extra amount. What shall I do?
Harsh Roongta answers, Don't depend on any verbal instructions. File an official complaint on the bank's website and if they do not reverse one of the debits, complain to the banking ombudsman. Address and details on http://www.rbi.org.in/.
Question: I had an outstanding with SBI of Rs 2,700-odd amount and I received a call from ICICI for transfer of funds. I informed them to transfer Rs 3,000 and they transferred Rs 83,000 to my SBI card and now SBI is not refunding the excess paid to them of Rs 80,270.84. Kindly advice how can I get the refund at the earliest? It is more then 6 months now.
Harsh Roongta answers, Your best bet is to withdraw cash on your SBI card and deposit it back into your ICICI credit card account. Although you will end up paying a one time fee of about 3 per cent (about Rs 2,400 on Rs 80,000), atleast you will save on the interest that you must be paying on your ICICI Bank credit card.
Question: My bank says that they won't charge if late till 52 days. But still they charge the late fee and threaten to recover money the hard way. Please help.
Harsh Roongta answers, I think there is a lot of misunderstanding about the maximum free days allowed for payment. The maximum free days are available only for purchases made on the first day of the billing cycle. For purchases made on the second day you get only 51 days and so on till you get only 21 days for the purchases made on the last day of the billing cycle.
Also, the free period is not available if you have rolled over any amount in the past billing cycle. So my advice is please pay up the interest and fees that the bank is asking or you risk being reported to the credit bureau as a defaulter which will make it difficult for you to get any credit in the future.
Question: I owe the credit card company a huge amount and am finding it difficult to repay it. What can I do to clear my debt without putting too much of a strain on my financial situation.
Harsh Roongta answers, Unfortunately, there is no simple answer to your problem. Your past sins have a way of catching up with you. I would strongly recommend that you make all attempts to pay up the credit card dues in full. The bank may otherwise report you to the credit bureau as a defaulter making it difficult for you to raise any loans in the future.
Question: What happens if we don't pay credit card outstanding amount and is unable to pay back the personal loan EMIs? Do they employ any illegal means or just declare their card holder defaulter and put her/his name in the black list. Is there any thing to worry out?
Harsh Roongta answers, Well, there are serious economic implications in terms of not being able to access any loans in the future. Also, the bank will take legal action to get you declared as a defaulter which means all assets owned by you will need to be paid over to the bank to satisfy the liabilities. The process is no longer as slow as it used to be earlier, so I implore you to take this seriously.
Question: I found fraudulent transactions on my credit card. Several airline tickets were booked online using my credit card number; I disputed this with the bank and the bank says it is investigating the matter. What action should I take from my side.
Harsh Roongta answers, No other action required for the time being as long as the bank does not re-debit the amount to your credit card. If they do, you should complain to the banking ombudsman. Details on www.rbi.org.in.
Question: My husband lost heavily in business . In the meantime he has used credit cards excessively. In between he was not able to pay the premiums. Then he got a good job and then thought of paying regularly but with all the stress he had faced he collapsed had a massive attack and died. Now the credit card people are behind me. Am I responsible for those payments? He has no property nor any insurance. I am broke and started going for a job at the age of 52 what can be done?
Harsh Roongta answers, Unless you have inherited any asset from your husband, you are not legally responsible for the debts of your husband. If you have inherited any assets than you are responsible only to the extent of the assets inherited.
You should file an official complaint with the concerned bank on their website and complain further to the banking ombudsman (details on www.rbi.org.in) if the bank still does not stop the collection process.
Question: How to cope up with credit card dues payment? I have taken personal loan from ICICI credit card to pay my dues, but in monthly statements, they add principal+ interest + service tax. If I am taking loan from the same bank, of which I have a credit card then why do they put service tax on it?
Harsh Roongta answers, Any interest payable on a loan taken on a credit card is chargeable to service tax. A better bet is to take an independent personal loan from your bank and use it to pay off the credit card dues.
Quetion: Is it a statutory financial discipline on the part of the banker to warn/ alert the card holder if any abnormal transaction happens on her/ his account?
Harsh Roongta answers, There is no such legal requirement though most banks have fraud alert systems within their credit card authorisation systems. So, for example, your card may be declined if you have never in the past used it in a jewellery store and you may get a call from your bank on your mobile checking whether it was you who actually initiated that transaction. If you confirm, they may request you to re-swipe the card and approve it this time. But all this is not a legal requirement on the part of the ban
When do they charge interest and when do they levy a late fee?
Is there any service tax applicable on the goods that you purchase using your card?
Do you know how to go about filing a complaint against a credit card company for harrassment?
Can these companies employ illegal means to recover their dues?
Are you liable to pay your spouse's credit card dues in case of her/ his sudden demise?
In a chat with readers on May 8, Get Ahead personal finance expert Harsh Roongta answered these and many more queries related to credit card problems customers face.
For those of you who missed the chat, here is the transcript.
Question:, My wife was having SBI card which she got from SBI bank in PUNE. Afterwards whenever we had any inquiry, none of the bank employees were ready to help us. This is ridiculous for me as the bank which is giving me the card is unable to help us in case of any inquiry. What they say is you call the helpline number which is flooded with call and we have to hold our call for half an hour and we are paying for that.
Harsh Roongta answers, That is an understandable issue as the card is issued by a separate organisation which is a joint venture between GE and SBI, though the brand on the card is that of SBI alone. Your confusion is understandable though as all these are only technical matters as far as you are concerned. However, I am afraid, in your specific case you have no other alternative other than the help line number or the SBI cards website to lodge your complaint or make your query.
Question, What is the interest rate generally credit card companies levy if I my due after 52 days?
Harsh Roongta answers, Interest rates on most credit cards vary between 27 per cent to 40 per cent per annum (assuming you have paid the minimum due amount by due date). If you have not paid anything by the due date, then you will have to pay the late payment fee as well as overdue interest which will also be at a higher rate.
Question:Sir, I was using ICICI Bank's credit card. They have debited an amount of Rs 6,000 against the payment of MTNL telephone bill from my credit card. But I don't have any MTNL phone. After making lot of phone calls to their Hyderabad office, they are unable to give me any satisfactory answer. I have stopped all the payment for the same. Now, tell me what should I do to solve this matter.
Harsh Roongta answers, Please lodge an official complaint on the ICICI Bank website. If your query is not resolved within 2-3 weeks to your satisfaction, you should complain to the banking ombudsman in your area. The list of banking ombudsman is available on www.rbi.org.in
Question: Is there any service tax applicable if I buy any electronic goods through my credit cards?
Harsh Roongta answers, There is no additional tax on purchase of the item itself. However, if you do not pay the entire amount due on due date, then you will need to pay interest on the amount rolled over and on this interest there is a service tax chargeable.
Question: I am using the credit cards of almost 10-12 banks since last 7 years and have never faced any problem of any kind. Even you can say I have enjoyed a lot of offers, discounts, bonus points etc. Don't you think the main problem is with the credit card holder as they can't keep the proper record and timely check up of credit card outstanding?
Harsh Roongta answers, You are right, Kapil. Provided you keep proper records and pay your dues on time (do not use credit cards to borrow money), credit cards can be a real boon and convenience. However, if you are of the kind who cannot control your spending on impulse buys, then you should probably not use credit cards at all.
Queston:I did an online transaction with my credit card. First time before the transaction was over it threw some error. So I did it the second time. Now the same amount is coming to my bill twice. I have complained. They told you pay the bill amount minus the extra amount. What shall I do?
Harsh Roongta answers, Don't depend on any verbal instructions. File an official complaint on the bank's website and if they do not reverse one of the debits, complain to the banking ombudsman. Address and details on http://www.rbi.org.in/.
Question: I had an outstanding with SBI of Rs 2,700-odd amount and I received a call from ICICI for transfer of funds. I informed them to transfer Rs 3,000 and they transferred Rs 83,000 to my SBI card and now SBI is not refunding the excess paid to them of Rs 80,270.84. Kindly advice how can I get the refund at the earliest? It is more then 6 months now.
Harsh Roongta answers, Your best bet is to withdraw cash on your SBI card and deposit it back into your ICICI credit card account. Although you will end up paying a one time fee of about 3 per cent (about Rs 2,400 on Rs 80,000), atleast you will save on the interest that you must be paying on your ICICI Bank credit card.
Question: My bank says that they won't charge if late till 52 days. But still they charge the late fee and threaten to recover money the hard way. Please help.
Harsh Roongta answers, I think there is a lot of misunderstanding about the maximum free days allowed for payment. The maximum free days are available only for purchases made on the first day of the billing cycle. For purchases made on the second day you get only 51 days and so on till you get only 21 days for the purchases made on the last day of the billing cycle.
Also, the free period is not available if you have rolled over any amount in the past billing cycle. So my advice is please pay up the interest and fees that the bank is asking or you risk being reported to the credit bureau as a defaulter which will make it difficult for you to get any credit in the future.
Question: I owe the credit card company a huge amount and am finding it difficult to repay it. What can I do to clear my debt without putting too much of a strain on my financial situation.
Harsh Roongta answers, Unfortunately, there is no simple answer to your problem. Your past sins have a way of catching up with you. I would strongly recommend that you make all attempts to pay up the credit card dues in full. The bank may otherwise report you to the credit bureau as a defaulter making it difficult for you to raise any loans in the future.
Question: What happens if we don't pay credit card outstanding amount and is unable to pay back the personal loan EMIs? Do they employ any illegal means or just declare their card holder defaulter and put her/his name in the black list. Is there any thing to worry out?
Harsh Roongta answers, Well, there are serious economic implications in terms of not being able to access any loans in the future. Also, the bank will take legal action to get you declared as a defaulter which means all assets owned by you will need to be paid over to the bank to satisfy the liabilities. The process is no longer as slow as it used to be earlier, so I implore you to take this seriously.
Question: I found fraudulent transactions on my credit card. Several airline tickets were booked online using my credit card number; I disputed this with the bank and the bank says it is investigating the matter. What action should I take from my side.
Harsh Roongta answers, No other action required for the time being as long as the bank does not re-debit the amount to your credit card. If they do, you should complain to the banking ombudsman. Details on www.rbi.org.in.
Question: My husband lost heavily in business . In the meantime he has used credit cards excessively. In between he was not able to pay the premiums. Then he got a good job and then thought of paying regularly but with all the stress he had faced he collapsed had a massive attack and died. Now the credit card people are behind me. Am I responsible for those payments? He has no property nor any insurance. I am broke and started going for a job at the age of 52 what can be done?
Harsh Roongta answers, Unless you have inherited any asset from your husband, you are not legally responsible for the debts of your husband. If you have inherited any assets than you are responsible only to the extent of the assets inherited.
You should file an official complaint with the concerned bank on their website and complain further to the banking ombudsman (details on www.rbi.org.in) if the bank still does not stop the collection process.
Question: How to cope up with credit card dues payment? I have taken personal loan from ICICI credit card to pay my dues, but in monthly statements, they add principal+ interest + service tax. If I am taking loan from the same bank, of which I have a credit card then why do they put service tax on it?
Harsh Roongta answers, Any interest payable on a loan taken on a credit card is chargeable to service tax. A better bet is to take an independent personal loan from your bank and use it to pay off the credit card dues.
Quetion: Is it a statutory financial discipline on the part of the banker to warn/ alert the card holder if any abnormal transaction happens on her/ his account?
Harsh Roongta answers, There is no such legal requirement though most banks have fraud alert systems within their credit card authorisation systems. So, for example, your card may be declined if you have never in the past used it in a jewellery store and you may get a call from your bank on your mobile checking whether it was you who actually initiated that transaction. If you confirm, they may request you to re-swipe the card and approve it this time. But all this is not a legal requirement on the part of the ban
Monday, May 7, 2007
Chennai Credit card users' association launched
CHENNAI: The Chennai chapter of the Credit Card Users Association was launched on Wednesday.
Talking to reporters, Credit Card Holders' Association of India general secretary C.V. Giddappa said the objective of the Association was to save innocent people from the clutches of bankers who harassed them. There were numerous complaints from people that, under the pretext of collection, they were threatened at odd hours and even detained illegally.
Many bankers issued credit cards to people without verifying their credit worthiness. This led the cardholders into a debt trap, Mr. Giddappa said.
The Association was organising "credit card surrender campaigns". So far, about 25,000 cards surrendered across the country had been sent to the banks concerned, he said. For details, contact Association's Chennai chapter president I. Arokiasamy and vice president S. Sabari Perumal on 94440-03336 or 044-25384061.
Talking to reporters, Credit Card Holders' Association of India general secretary C.V. Giddappa said the objective of the Association was to save innocent people from the clutches of bankers who harassed them. There were numerous complaints from people that, under the pretext of collection, they were threatened at odd hours and even detained illegally.
Many bankers issued credit cards to people without verifying their credit worthiness. This led the cardholders into a debt trap, Mr. Giddappa said.
The Association was organising "credit card surrender campaigns". So far, about 25,000 cards surrendered across the country had been sent to the banks concerned, he said. For details, contact Association's Chennai chapter president I. Arokiasamy and vice president S. Sabari Perumal on 94440-03336 or 044-25384061.
Friday, May 4, 2007
How to use credit cards wisely?
Credit cards have become an integral part of your life. It's the impulsive buying that's inflating your credit card bills. Read these 10 tips on using credit cards that will keep you and your credit scores merry and bright.
1.Stay away from high credit balances and too many a/c
Charging high amounts to your credit cards and carrying them over month to month can lower your credit score, even if you are making payments. That's because the high balances could indicate that you may have bit off more than you can chew, financially speaking.
Don't open too many new credit or charge accounts. This affects your score -- it may indicate that you're spending more than you can afford.
2.If a creditor inquires about your credit score, it counts against you
Whenever you open a new account, a creditor will check your credit report. This is what's known as a "hard" inquiry, and it's figured into the formula for calculating your final credit score. Too many hard inquiries can, indeed, count against you. "Soft" inquiries, however, (such as when you inquire about your own credit report) do not get factored in.
3.Pick a card that fits your needs
There are all kinds of credit cards in the market -- those that offer airline, merchandise or travel rewards, those that offer extra warranties or accident insurance for electronics or travel and those that offer low, fixed interest rates. Depending on your needs and lifestyle, you should choose a card that can benefit you the most.
4.Have your name taken off of credit marketing lists
If you find it tempting (or just annoying) that credit card companies are mailing you marketing materials to get you to sign up for their cards, you can have your name removed from their lists.
5.Closing an account doesn't mean your score will increase
Depending on the situation, closing a credit account could actually hurt your score because it could increase the balance-to-limit ratio. However, it may also raise your score if you have too many cards open, or have no effect whatsoever. The card you choose to close can also make a difference. For instance, a card you've had for a long time that is in good standing may positively impact your credit score, so that would not be the one to choose to close.
6.Pay more than the minimum balance
The typical credit card purchase is, on average, 112 per cent higher than if using cash. That's because creditors make money from your interest payments. If you only make the minimum payment each month, you will end up paying much more than you intended to, and more than the purchase was worth. Even doubling the minimum payment means that you'll pay the card off twice as fast, and save yourself hundreds, if not thousands, of dollars in interest.
7.Know the credit lingo
Charge cards, credit cards and secured cards are not one in the same. A charge card, such as American Express or Diner's Club, requires that you pay the balance off at the end of each month. If you are late with the payment, you may be charged very high penalty interest charges.
A credit card, on the other hand, allows you to carry over a balance from month to month. However, it also allows you to accumulate interest charges. A secured card is a credit card that is backed by a bank deposit by the consumer. People who may not be able to get an unsecured card can often qualify for a secured card and use it to establish credit.
8.Credit risks
The criteria used in determining whether or not you qualify for a credit card is not set in stone and varies by creditor. In this way, you may qualify for one card but that doesn't mean you will automatically qualify for all similar cards. If you are ever denied credit, however, the creditor must give you a copy of your credit report, along with an explanation as to why you were denied.
9.Know your rights if your card is stolen
Consumers can dispute certain charges on their stolen cards and have limited liability if fraud occurs. The important things to remember are:
You are not liable for any charges on your card that appear after you've reported it stolen.
10.Try to use some self-control
Though you may be tempted to splurge on holiday gifts or other items knowing you don't have to pay right away, remember that the bill will eventually come. If you know you won't be able to pay for a purchase, don't buy it. Likewise, in the event you must charge a large amount of money for emergency purposes, set up a plan to get it paid off as quickly as possible so it doesn't spiral out of control.
1.Stay away from high credit balances and too many a/c
Charging high amounts to your credit cards and carrying them over month to month can lower your credit score, even if you are making payments. That's because the high balances could indicate that you may have bit off more than you can chew, financially speaking.
Don't open too many new credit or charge accounts. This affects your score -- it may indicate that you're spending more than you can afford.
2.If a creditor inquires about your credit score, it counts against you
Whenever you open a new account, a creditor will check your credit report. This is what's known as a "hard" inquiry, and it's figured into the formula for calculating your final credit score. Too many hard inquiries can, indeed, count against you. "Soft" inquiries, however, (such as when you inquire about your own credit report) do not get factored in.
3.Pick a card that fits your needs
There are all kinds of credit cards in the market -- those that offer airline, merchandise or travel rewards, those that offer extra warranties or accident insurance for electronics or travel and those that offer low, fixed interest rates. Depending on your needs and lifestyle, you should choose a card that can benefit you the most.
4.Have your name taken off of credit marketing lists
If you find it tempting (or just annoying) that credit card companies are mailing you marketing materials to get you to sign up for their cards, you can have your name removed from their lists.
5.Closing an account doesn't mean your score will increase
Depending on the situation, closing a credit account could actually hurt your score because it could increase the balance-to-limit ratio. However, it may also raise your score if you have too many cards open, or have no effect whatsoever. The card you choose to close can also make a difference. For instance, a card you've had for a long time that is in good standing may positively impact your credit score, so that would not be the one to choose to close.
6.Pay more than the minimum balance
The typical credit card purchase is, on average, 112 per cent higher than if using cash. That's because creditors make money from your interest payments. If you only make the minimum payment each month, you will end up paying much more than you intended to, and more than the purchase was worth. Even doubling the minimum payment means that you'll pay the card off twice as fast, and save yourself hundreds, if not thousands, of dollars in interest.
7.Know the credit lingo
Charge cards, credit cards and secured cards are not one in the same. A charge card, such as American Express or Diner's Club, requires that you pay the balance off at the end of each month. If you are late with the payment, you may be charged very high penalty interest charges.
A credit card, on the other hand, allows you to carry over a balance from month to month. However, it also allows you to accumulate interest charges. A secured card is a credit card that is backed by a bank deposit by the consumer. People who may not be able to get an unsecured card can often qualify for a secured card and use it to establish credit.
8.Credit risks
The criteria used in determining whether or not you qualify for a credit card is not set in stone and varies by creditor. In this way, you may qualify for one card but that doesn't mean you will automatically qualify for all similar cards. If you are ever denied credit, however, the creditor must give you a copy of your credit report, along with an explanation as to why you were denied.
9.Know your rights if your card is stolen
Consumers can dispute certain charges on their stolen cards and have limited liability if fraud occurs. The important things to remember are:
You are not liable for any charges on your card that appear after you've reported it stolen.
10.Try to use some self-control
Though you may be tempted to splurge on holiday gifts or other items knowing you don't have to pay right away, remember that the bill will eventually come. If you know you won't be able to pay for a purchase, don't buy it. Likewise, in the event you must charge a large amount of money for emergency purposes, set up a plan to get it paid off as quickly as possible so it doesn't spiral out of control.
Credit card: Remember these dos and don'ts
How often have you missed out on that 'cash back' offer on your credit card?
Weren't you surprised when you were sent a pre-approved loan on your credit card at a discounted rate of interest?
While such gimmicks let credit card companies laugh their way to the banks, it is you who end up feeling miserable. To avoid such mistakes, here are some tips you may find useful.
Go through the various offers made by your credit card company carefully. Many people forget to do this and hence lose out good opportunities.
For instance, some periods are earmarked for cash back or reward offers. If you keep track of these dates and postpone or advance your purchases, you can reap those benefits. Credit card companies often send mailers or advertise such offers through different media, including their own websites.
Sometimes, if you book air ticket/s from a particular airline through your bank's credit card, you get a certain amount of cash back; this is usually as a percentage of the total amount you spent on the ticket/s. However, if you are not aware of this benefit, you may buy the same ticket through other means and not be able to avail of this offer.
Again, you need to keep your eyes and ears open to avail of such offers. The means to advertise them remains the same.
Very often, you will be told by your card company that you can have a DD or a cheque mailed to you as a loan since you are a 'chosen' or 'esteemed' customer. They also tell you that the interest rate for this loan would be less than the interest rate charged for a personal loan. Read the fine print thoroughly, and ask questions about it, before going for such offers.
For instance, the processing fee on this loan plus the service taxes and other undisclosed factors may nullify the 'less interest' charged on this loan.
In case if you've made a large payment on your credit card for any big purchase you may have made, say a television set or some new furniture for your home, you may get a phone call from your card company. They may say they'd be pleased to convert that particular payment into a 'flexi-pay' scheme in which you can pay the money back in installments.
Again, don't forget to check the cost of the processing fee and the eligible rate of interest. It could be considerable. In that case, if you have the money, just pay the credit card bill.
If your credit card bill and some other commitments are due around the same time, don't think twice... pay the card dues first. Take withdrawals from PF/ PPF or break that FD with your bank if possible. Don't get into a debt trap with the credit card company.
Try to always have your money (or be sure it's coming by way of your salary or in any other form from your employer) before you spend through your credit card. Maintain a record of the goods you buy on your card and keep aside (mentally) that much money in your savings bank account.
You could even tell your bank to pay the card bills through electronic clearing system, ECS. This is a mechanism whereby you instruct your bank to debit a fixed sum from your savings account on a particular date. The bank does it for you, provided you have enough money in your account.
This will ensure the first payment is made to the card company before the due date. As a result, you will maintain a good track record with your credit card company. You will also save the money you would have otherwise paid as the late payment charge because you missed paying your bill by the due date.
Read the card statement carefully (you could check it online if possible). Check if the 'cash back' amounts (if you are eligible for it) are credited; find out if you have got petrol surcharge reversed; if not, do alert the credit card company and get the error rectified.
I was once surprised to find that a sum of over Rs 150 was not credited to my credit card account. This was because the 'cash back' that was due to me was not reflecting in my bill statement. I called the help line official, who quickly corrected the error.
Some card companies advertise their 'toll free' help line numbers. Some don't. Try to find those phone numbers. Otherwise, for most of your queries, the hold time and talk time put together crosses several minutes. Without realising it, you may increase your phone bill if you're not using the toll-free line.
Don't ask for a duplicate statement (unless it's free). Check it online at the company site and take a printout for yourself.
In the US and the European Union, customers who pay their bill on time regularly get a reward for not being a liability for the company. If you pay your credit card bills promptly, you must check periodically with your company about increasing the credit limit or cash limit.
Last but not the least, DON'T withdraw cash from the ATM unless it is a real emergency since you will be charged the standard 2.5 per cent interest from the time you withdraw the money. Besides, you will also be charged a cash withdrawal fee. Instead, try to pay through a bank cheque or borrow cash from a friend that you could return soon.
Weren't you surprised when you were sent a pre-approved loan on your credit card at a discounted rate of interest?
While such gimmicks let credit card companies laugh their way to the banks, it is you who end up feeling miserable. To avoid such mistakes, here are some tips you may find useful.
Go through the various offers made by your credit card company carefully. Many people forget to do this and hence lose out good opportunities.
For instance, some periods are earmarked for cash back or reward offers. If you keep track of these dates and postpone or advance your purchases, you can reap those benefits. Credit card companies often send mailers or advertise such offers through different media, including their own websites.
Sometimes, if you book air ticket/s from a particular airline through your bank's credit card, you get a certain amount of cash back; this is usually as a percentage of the total amount you spent on the ticket/s. However, if you are not aware of this benefit, you may buy the same ticket through other means and not be able to avail of this offer.
Again, you need to keep your eyes and ears open to avail of such offers. The means to advertise them remains the same.
Very often, you will be told by your card company that you can have a DD or a cheque mailed to you as a loan since you are a 'chosen' or 'esteemed' customer. They also tell you that the interest rate for this loan would be less than the interest rate charged for a personal loan. Read the fine print thoroughly, and ask questions about it, before going for such offers.
For instance, the processing fee on this loan plus the service taxes and other undisclosed factors may nullify the 'less interest' charged on this loan.
In case if you've made a large payment on your credit card for any big purchase you may have made, say a television set or some new furniture for your home, you may get a phone call from your card company. They may say they'd be pleased to convert that particular payment into a 'flexi-pay' scheme in which you can pay the money back in installments.
Again, don't forget to check the cost of the processing fee and the eligible rate of interest. It could be considerable. In that case, if you have the money, just pay the credit card bill.
If your credit card bill and some other commitments are due around the same time, don't think twice... pay the card dues first. Take withdrawals from PF/ PPF or break that FD with your bank if possible. Don't get into a debt trap with the credit card company.
Try to always have your money (or be sure it's coming by way of your salary or in any other form from your employer) before you spend through your credit card. Maintain a record of the goods you buy on your card and keep aside (mentally) that much money in your savings bank account.
You could even tell your bank to pay the card bills through electronic clearing system, ECS. This is a mechanism whereby you instruct your bank to debit a fixed sum from your savings account on a particular date. The bank does it for you, provided you have enough money in your account.
This will ensure the first payment is made to the card company before the due date. As a result, you will maintain a good track record with your credit card company. You will also save the money you would have otherwise paid as the late payment charge because you missed paying your bill by the due date.
Read the card statement carefully (you could check it online if possible). Check if the 'cash back' amounts (if you are eligible for it) are credited; find out if you have got petrol surcharge reversed; if not, do alert the credit card company and get the error rectified.
I was once surprised to find that a sum of over Rs 150 was not credited to my credit card account. This was because the 'cash back' that was due to me was not reflecting in my bill statement. I called the help line official, who quickly corrected the error.
Some card companies advertise their 'toll free' help line numbers. Some don't. Try to find those phone numbers. Otherwise, for most of your queries, the hold time and talk time put together crosses several minutes. Without realising it, you may increase your phone bill if you're not using the toll-free line.
Don't ask for a duplicate statement (unless it's free). Check it online at the company site and take a printout for yourself.
In the US and the European Union, customers who pay their bill on time regularly get a reward for not being a liability for the company. If you pay your credit card bills promptly, you must check periodically with your company about increasing the credit limit or cash limit.
Last but not the least, DON'T withdraw cash from the ATM unless it is a real emergency since you will be charged the standard 2.5 per cent interest from the time you withdraw the money. Besides, you will also be charged a cash withdrawal fee. Instead, try to pay through a bank cheque or borrow cash from a friend that you could return soon.
Getting a credit card? Beware
The credit card collection agent comes knocking at your door and you are not home. Ever faced such a situation?
Well, a friend of mine -- let's call him Amit -- did. Actually, he was in his office when the credit card collection 'agent' called. "You have a credit card outstanding of Rs 19,000 and you need to pay it soon," he threatened.
"No way," Amit replied firmly. "Not till you guys show or courier me the documents I signed while getting this card." This was not the first time he was being threatened by this particular bank's collection agents.
Seeing that he was not relenting, the agent used another trick -- he passed some obnoxious comments about Amit's wife. Amit, who is a tough nut, returned in kind.
Amit did not know the agent was standing outside his building and making that phone call. The agent went upstairs and threatened Amit's old parents (both heart patients) with dire consequences if their son didn't cough up the dues outstanding on his card. He was so audacious that he called Amit again and made him listen to this entire conversation. He also threatened Amit again.
This scared Amit. He called his mother and told her to call the police.
Before the police could arrive (surprisingly, they did arrive within 10 minutes of the call), the agent had vamoosed. In order to scare the agent, Amit's mother had told him she had made a complaint and the police were on their way.
In the evening, while on his way home, Amit lodged a non-cognisable offence complaint against the agent and the bank. Ironically, the inspector in charge dissuaded Amit from taking his grievance further.
"The next logical step," he told Amit, "would be to go that agent's office and arrest him. This would then lead to you filing a court case against the agent, his superiors and the bank. Don't you know how the courts function in India?"
The inspector knew perfectly well that this particular comment would dissuade Amit from taking further action. The inspector did not have a vested interest in not taking the case further; he just wanted to save himself some trouble.
Amit now decided to settle the matter once and for all. He went to the bank's collection office and met with the person in charge of his credit card account. He, too, was as rude as the collection agent and refused to hand over a copy of documents Amit had signed while filling his account opening form.
Now, here's a flashback. The bank in question had approached Amit to open a credit card account when he was working with a reputed company in Mumbai. Though he was a bit reluctant initially, he gave in after the agent told him it was a lifetime free credit card.
He would not be charged the annual maintenance charges that other credit card companies levy to keep a card active. The lure of saving some Rs 750 finally made Amit put pen to paper and sign on the dotted lines without reading the fine print and the clauses just above his signatures.
Remember that Amit was in his office and had no time to read the papers or ask the agent any questions. It was this error that resulted in the trouble he was facing now. Little did he know he was signing under a clause that allowed the bank to auto-debit his account in case if he failed to pay the minimum amount due on his credit card.
Auto-debit is a facility whereby the customer's bank account is linked his credit card account; if the customer fails to pay the amount by the due date, then the credit card company automatically debits the customer's account for that amount.
Oblivious to this fact, Amit was shocked one day to see his credit card bill showing an auto-debit of Rs 800. He would still not have noticed it had it not been for the auto-debit return charge, late payment fee charge billed on his account.
He was penalised since his bank did not have the requisite amount to pay the minimum amount due on his account; the credit card company had made an effort to collect the amount and failed to do so. This is the auto-debit return charge.
Since he had missed paying the minimum amount due on his card before the due date, he was charged with yet another penalty: the late payment fee.
When he called on the customer service executive, the female voice (they are just that; sometimes you are connected to an executive in Hyderabad and sometimes in Mumbai. There is no systematic way of making notes on an account like they do in America) told him that, since he'd failed to make payments for the minimum amount due on his account, the credit card company made use of the auto-debit facility.
As per the practice followed by collection companies in the US, each collection agent calling on a customer has to maintain a written note about the conversation between the agent and the customer. This helps other customer care or collection agents know the exact status of the customer's account.
So, if some other agent calls on the customer the next time, s/he knows what exactly the matter is. This had not happened in Amit's case for he had no idea if the agent he was speaking with was located in Mumbai or Hyderabad. Besides, he had already had a number of such conversations regarding the matter.
The agent told him that since there were no money available in his bank account, the auto-debit could not go through so he was charged an auto-debit return charge. As the payment was not made before the due date, they had also charged him a late payment fee.
Amit demanded a copy of his account opening documents; he did not think he had given the credit card company the right to auto-debit from his bank account.
The executive at the other end told him she couldn't do so as she did not have the documents. Even her senior, who finally came on the line, refused to promise he would send those documents.
Amit was adamant and said he would not make any payment on his card unless he saw the account opening form and his signature below the auto-debit clause (Wasn't it the agent's duty to tell Amit about this clauses at the time of opening the account? Of course, it was also Amit's duty to ask the agent about it, which, unfortunately, he didn't).
Interestingly, both the customer care agent and her senior refused to give Amit their employee ID numbers. Employee ID numbers help customers locate the person s/he spoke with (In the USA, for example, it is mandatory for the customer care/ collection agents to give their employee IDs under the Fair Debt Collection Practices Act, if the customer demands it).
After this, whenever the collection agent would call Amit for his outstanding dues, he would ask them to show him or courier the documents first. This went on for about two months. Finally, the credit card collection agent knocked on Amit's door.
Not the kind to get easily bogged down after his disillusionment with the inspector, Amit decided to seek recourse with the banking ombudsman. The ombudman, who is appointed by the banking regulator in India, the Reserve Bank of India, can redress customer complaints against certain deficiency in banking services. S/he can be reached at www.bankingombudsman.rbi.org.in. This website contains all the details about how to approach this authority and how to file complaints against banks in case of any grievances. It is a one-stop shop for people having grievances against banks and the method of redressal.
The ombudsman did send a notice to the bank. The bank replied that no such incident had ever taken place. Following this, the bank's credit card manager from Hyderabad called up Amit's mother and apologised, even as he said the person must not have been the bank's agent. The bank also sent a complimentary haversack to Amit to assuage his feelings.
Finally, the bank did send Amit a scanned copy of his account opening form. Amit did indeed see his signature below the auto-debit clause and promptly paid the outstanding balance. Of course, he asked for cancellation of all the late payment charges.
Remember, most penalties are reversible and the customer care agents do show promptness in canceling them if you have a good case.
As of today, Amit's case is still pending with the banking ombudsman. Here are certain points to keep in mind so that you do not suffer the same misery Amit did.
1. Always ask questions to anyone who offers you a credit card, bank loan, personal loan, etc.
Do not take them at face value. Double-check the information they provide with a couple of other agents belonging to different banks.
Finally, if you are not satisfied don't buy their products or services.
2. Ask them about the finer points. More often than not, they may themselves don't know about it. In that case, ask them for their product's official brochures.
3. Don't sign blindly on the dotted line (remember Amit whenever such an impulse strike you!). Scan through the various clauses under which you are putting your signatures.
Ask these agents for their ID cards. Even if most of them are third parties (that is companies appointed by banks to get these formalities done), they do have a proper ID card. Take down their employee ID number, their telephone number and the address of their office. You may need them in case of any problem with their product or service.
4. Finally, read through the fine print on your own. No one else can do this for you.
Well, a friend of mine -- let's call him Amit -- did. Actually, he was in his office when the credit card collection 'agent' called. "You have a credit card outstanding of Rs 19,000 and you need to pay it soon," he threatened.
"No way," Amit replied firmly. "Not till you guys show or courier me the documents I signed while getting this card." This was not the first time he was being threatened by this particular bank's collection agents.
Seeing that he was not relenting, the agent used another trick -- he passed some obnoxious comments about Amit's wife. Amit, who is a tough nut, returned in kind.
Amit did not know the agent was standing outside his building and making that phone call. The agent went upstairs and threatened Amit's old parents (both heart patients) with dire consequences if their son didn't cough up the dues outstanding on his card. He was so audacious that he called Amit again and made him listen to this entire conversation. He also threatened Amit again.
This scared Amit. He called his mother and told her to call the police.
Before the police could arrive (surprisingly, they did arrive within 10 minutes of the call), the agent had vamoosed. In order to scare the agent, Amit's mother had told him she had made a complaint and the police were on their way.
In the evening, while on his way home, Amit lodged a non-cognisable offence complaint against the agent and the bank. Ironically, the inspector in charge dissuaded Amit from taking his grievance further.
"The next logical step," he told Amit, "would be to go that agent's office and arrest him. This would then lead to you filing a court case against the agent, his superiors and the bank. Don't you know how the courts function in India?"
The inspector knew perfectly well that this particular comment would dissuade Amit from taking further action. The inspector did not have a vested interest in not taking the case further; he just wanted to save himself some trouble.
Amit now decided to settle the matter once and for all. He went to the bank's collection office and met with the person in charge of his credit card account. He, too, was as rude as the collection agent and refused to hand over a copy of documents Amit had signed while filling his account opening form.
Now, here's a flashback. The bank in question had approached Amit to open a credit card account when he was working with a reputed company in Mumbai. Though he was a bit reluctant initially, he gave in after the agent told him it was a lifetime free credit card.
He would not be charged the annual maintenance charges that other credit card companies levy to keep a card active. The lure of saving some Rs 750 finally made Amit put pen to paper and sign on the dotted lines without reading the fine print and the clauses just above his signatures.
Remember that Amit was in his office and had no time to read the papers or ask the agent any questions. It was this error that resulted in the trouble he was facing now. Little did he know he was signing under a clause that allowed the bank to auto-debit his account in case if he failed to pay the minimum amount due on his credit card.
Auto-debit is a facility whereby the customer's bank account is linked his credit card account; if the customer fails to pay the amount by the due date, then the credit card company automatically debits the customer's account for that amount.
Oblivious to this fact, Amit was shocked one day to see his credit card bill showing an auto-debit of Rs 800. He would still not have noticed it had it not been for the auto-debit return charge, late payment fee charge billed on his account.
He was penalised since his bank did not have the requisite amount to pay the minimum amount due on his account; the credit card company had made an effort to collect the amount and failed to do so. This is the auto-debit return charge.
Since he had missed paying the minimum amount due on his card before the due date, he was charged with yet another penalty: the late payment fee.
When he called on the customer service executive, the female voice (they are just that; sometimes you are connected to an executive in Hyderabad and sometimes in Mumbai. There is no systematic way of making notes on an account like they do in America) told him that, since he'd failed to make payments for the minimum amount due on his account, the credit card company made use of the auto-debit facility.
As per the practice followed by collection companies in the US, each collection agent calling on a customer has to maintain a written note about the conversation between the agent and the customer. This helps other customer care or collection agents know the exact status of the customer's account.
So, if some other agent calls on the customer the next time, s/he knows what exactly the matter is. This had not happened in Amit's case for he had no idea if the agent he was speaking with was located in Mumbai or Hyderabad. Besides, he had already had a number of such conversations regarding the matter.
The agent told him that since there were no money available in his bank account, the auto-debit could not go through so he was charged an auto-debit return charge. As the payment was not made before the due date, they had also charged him a late payment fee.
Amit demanded a copy of his account opening documents; he did not think he had given the credit card company the right to auto-debit from his bank account.
The executive at the other end told him she couldn't do so as she did not have the documents. Even her senior, who finally came on the line, refused to promise he would send those documents.
Amit was adamant and said he would not make any payment on his card unless he saw the account opening form and his signature below the auto-debit clause (Wasn't it the agent's duty to tell Amit about this clauses at the time of opening the account? Of course, it was also Amit's duty to ask the agent about it, which, unfortunately, he didn't).
Interestingly, both the customer care agent and her senior refused to give Amit their employee ID numbers. Employee ID numbers help customers locate the person s/he spoke with (In the USA, for example, it is mandatory for the customer care/ collection agents to give their employee IDs under the Fair Debt Collection Practices Act, if the customer demands it).
After this, whenever the collection agent would call Amit for his outstanding dues, he would ask them to show him or courier the documents first. This went on for about two months. Finally, the credit card collection agent knocked on Amit's door.
Not the kind to get easily bogged down after his disillusionment with the inspector, Amit decided to seek recourse with the banking ombudsman. The ombudman, who is appointed by the banking regulator in India, the Reserve Bank of India, can redress customer complaints against certain deficiency in banking services. S/he can be reached at www.bankingombudsman.rbi.org.in. This website contains all the details about how to approach this authority and how to file complaints against banks in case of any grievances. It is a one-stop shop for people having grievances against banks and the method of redressal.
The ombudsman did send a notice to the bank. The bank replied that no such incident had ever taken place. Following this, the bank's credit card manager from Hyderabad called up Amit's mother and apologised, even as he said the person must not have been the bank's agent. The bank also sent a complimentary haversack to Amit to assuage his feelings.
Finally, the bank did send Amit a scanned copy of his account opening form. Amit did indeed see his signature below the auto-debit clause and promptly paid the outstanding balance. Of course, he asked for cancellation of all the late payment charges.
Remember, most penalties are reversible and the customer care agents do show promptness in canceling them if you have a good case.
As of today, Amit's case is still pending with the banking ombudsman. Here are certain points to keep in mind so that you do not suffer the same misery Amit did.
1. Always ask questions to anyone who offers you a credit card, bank loan, personal loan, etc.
Do not take them at face value. Double-check the information they provide with a couple of other agents belonging to different banks.
Finally, if you are not satisfied don't buy their products or services.
2. Ask them about the finer points. More often than not, they may themselves don't know about it. In that case, ask them for their product's official brochures.
3. Don't sign blindly on the dotted line (remember Amit whenever such an impulse strike you!). Scan through the various clauses under which you are putting your signatures.
Ask these agents for their ID cards. Even if most of them are third parties (that is companies appointed by banks to get these formalities done), they do have a proper ID card. Take down their employee ID number, their telephone number and the address of their office. You may need them in case of any problem with their product or service.
4. Finally, read through the fine print on your own. No one else can do this for you.
When your credit card is your enemy
It was Diwali/Eid -- you could not really resist the temptation.
So you went berserk -- shopping, eating, entertaining, all on your credit card.
You're not really to blame -- after all, how often does one get to celebrate a nice, long festive weekend?
But, as the proverbial saying goes, good times have to come to an end. Reality sets in. Mundane tasks clamour for your attention. As will your credit card bill, when it lands on your doorstep.
Now, for the million-dollar question: What if you cannot pay it?
Well, you don't have any option but to 'revolve credit'. This means you pay part of your bill (five percent is the compulsory minimum) now and pay the rest later. It may sound convenient, even good, but remember -- revolving credit is not cool.
Here's why.
Let's assume you've run up a bill of Rs 25,000.
Since you don't have the necessary cash at the moment, you decide to use the revolving credit option and pay five percent of the amount -- Rs 1,250 -- now.
The balance (Rs 23,750) is carried forward and will be added to your next bill.
This is where the good news ends because the bank will charge you an interest of 2.95 percent on the pending amount.
Before you heave a sign of relief, remember this interest is charged on a monthly basis; per year, it works out to a whopping 35.4 percent!
At 2.95 percent per month, your interest on Rs 23,750 works out to Rs 700 a month.
So, if you don't use your card in the coming month, your next credit card bill will be Rs 24,450 (Rs 700 + Rs 23,750).
However, in that month, you happen to go out for dinner and the bill comes to Rs 1,000. You pay for it with your credit card.
Unfortunately, you are no longer enjoying the benefit of 'free credit'.
Earlier, you spent money through your credit card and paid up when the bill came at the end of the month.
From the time you spent the money till the time you paid the bill, you were enjoying free credit; when the bill came, you paid just what you spent (You do have to pay the annual fee as your cost for owning a credit card, but that's a minimal amount. There are, of course, reward points that work to your advantage, but that is something we will talk about another day.)
Now that you owe the bank money, you don't have the privilege of free credit anymore.
The Rs 1,000 you spent is added to your outstanding balance of Rs 23,750. You are now expected to pay interest on Rs 24,750. As a result, your total interest now works out to Rs 730. This means you now owe the bank Rs 25,480 (Rs 730 + Rs 24,750).
So
The more you spend, the bigger the principal amount you have to repay.
The more you spend, the faster your debt mounts.
The month after, your credit card bill is Rs 25,480. You still don't have enough money, so you use the five percent pay back option and pay the bank Rs 1,274. You now owe the bank Rs 24,206 on which they will charge you interest.
And, until you clear your loan, every single payment you make using your card will be added to your loan amount and you will be charged interest on it.
This will go on till every single rupee has been repaid.
With barely any effort on your part, you have just entered a debt trap in which you end up spending more than you make and more than you can afford to pay.
Lesson to be learnt: Use your card only as a convenience. If you use it to spend more than you can afford, all you do is end up losing a lot of money.
So you went berserk -- shopping, eating, entertaining, all on your credit card.
You're not really to blame -- after all, how often does one get to celebrate a nice, long festive weekend?
But, as the proverbial saying goes, good times have to come to an end. Reality sets in. Mundane tasks clamour for your attention. As will your credit card bill, when it lands on your doorstep.
Now, for the million-dollar question: What if you cannot pay it?
Well, you don't have any option but to 'revolve credit'. This means you pay part of your bill (five percent is the compulsory minimum) now and pay the rest later. It may sound convenient, even good, but remember -- revolving credit is not cool.
Here's why.
Let's assume you've run up a bill of Rs 25,000.
Since you don't have the necessary cash at the moment, you decide to use the revolving credit option and pay five percent of the amount -- Rs 1,250 -- now.
The balance (Rs 23,750) is carried forward and will be added to your next bill.
This is where the good news ends because the bank will charge you an interest of 2.95 percent on the pending amount.
Before you heave a sign of relief, remember this interest is charged on a monthly basis; per year, it works out to a whopping 35.4 percent!
At 2.95 percent per month, your interest on Rs 23,750 works out to Rs 700 a month.
So, if you don't use your card in the coming month, your next credit card bill will be Rs 24,450 (Rs 700 + Rs 23,750).
However, in that month, you happen to go out for dinner and the bill comes to Rs 1,000. You pay for it with your credit card.
Unfortunately, you are no longer enjoying the benefit of 'free credit'.
Earlier, you spent money through your credit card and paid up when the bill came at the end of the month.
From the time you spent the money till the time you paid the bill, you were enjoying free credit; when the bill came, you paid just what you spent (You do have to pay the annual fee as your cost for owning a credit card, but that's a minimal amount. There are, of course, reward points that work to your advantage, but that is something we will talk about another day.)
Now that you owe the bank money, you don't have the privilege of free credit anymore.
The Rs 1,000 you spent is added to your outstanding balance of Rs 23,750. You are now expected to pay interest on Rs 24,750. As a result, your total interest now works out to Rs 730. This means you now owe the bank Rs 25,480 (Rs 730 + Rs 24,750).
So
The more you spend, the bigger the principal amount you have to repay.
The more you spend, the faster your debt mounts.
The month after, your credit card bill is Rs 25,480. You still don't have enough money, so you use the five percent pay back option and pay the bank Rs 1,274. You now owe the bank Rs 24,206 on which they will charge you interest.
And, until you clear your loan, every single payment you make using your card will be added to your loan amount and you will be charged interest on it.
This will go on till every single rupee has been repaid.
With barely any effort on your part, you have just entered a debt trap in which you end up spending more than you make and more than you can afford to pay.
Lesson to be learnt: Use your card only as a convenience. If you use it to spend more than you can afford, all you do is end up losing a lot of money.
Are you revolving on your credit card?
Just don't have the money to pay your credit card bill this month.
"Don't worry," the helpful customer service executive cooed. "Just pay five percent. We shall carry forward the rest to the next month."
Well, congratulations. You just began an intense love affair with your bank.
They are going to love you even more than you love them. Want to know why?
Because, now, finally, they can make a nice packet on you.
On all the money you owe them, they are going to charge you 2.95 percent per month. That works out to 35.4 percent per annum.
What's more, you even start paying interest on any purchase you make. Buy a book, and you have to pay interest on this amount.
What's the way out?
You have two options.
1. Stop using the card.
The moment you run short of funds and have to revolve credit, stop using your card.
In fact, if your amount is huge, leave home without your card. Use cash or even another card till you clear your debts on the one you are revolving on.
Use the card only if you are certain you will clear all debts by the next month.
2. Switch credit cards.
All banks want people to take their credit cards.
And, one way they try to get your attention (and loyalty) is by offering what they call 'balance transfer':
~They pay back all the money you owe your bank on your card.
~All the money you owe the bank is transferred to them.
~They then charge you a lower interest rate on that amount so you end up paying less.
Assume that you are shifting to a card from Bank B from a Bank A card.
Bank B gives you a demand draft (in favour of Bank A) of the amount you owe Bank A.
You then need to make that payment to Bank A.
Until you get the demand draft or cheque, you continue making payments to Bank A.
When Bank A verifies the balance transfer (they will send you a statement to that effect), you stop paying them.
Now, how do you save?
Say you owe your bank Rs 25,000 on your credit card. And are paying 2.95 percent interest on it per month.
Let's say you opt for a balance transfer and are offered 1.65 percent for six months, during which time you are determined to pay up every single rupee (and not use the card at all).
Every month, you pay Rs 4,150 (for 5 months). In the last month, you pay Rs 4,250.
After six months, you will have totally cleared your debt.
You will pay Rs 1,099 as interest rate totally.
If you had stayed on with the earlier card, you would have paid Rs 2,060.
By switching cards, you saved Rs 961 on interest payment.
The savings may not appear to be much, but that is because you have been paying back a fair amount every month and not using your card at all.
If not, the lower interest rate would have made a bigger difference.
If you would like to see how much you can save, take a look at the simulator on the HDFC Bank web site: http://www.hdfcbank.com/creditcard/transferandsave/cc_btsimulator.asp
What you must know:
1.You can't stay with the same bank.
You will not be able to transfer credit from one card to another within the same bank.
To avail of the balance transfer facility, switch cards to another bank.
For instance, if you are revolving credit on the HDFC Gold Credit card, you will not be able to switch to the HDFC Silver Credit card. You will have to approach HSBC or ICICI Bank or any other card player.
2. Check if you have an account with the bank.
If you are switching your balance to a new card, the bank issuing that card may give you a better deal if you have an account with them.
Currently, HDFC Bank offers account holders just 1.45 percent per month to transfer balance to its Silver card (as against 1.65 percent for non-account holders).
3. There is a minimum amount.
The more you have in revolving credit, the more the banks will want you on board.
In fact, each bank will have a minimum amount, which you must be revolving.
Anything below and you will not be welcomed. To give you an indication, HDFC Bank currently asks for a minimum of Rs 7,500 (all cards) and Rs 20,000 (Gold card).
HSBC asks for at least Rs 10,000 for a Classic card and Rs 20,000 for the Gold.
Citibank takes a transfer for as low as Rs 2,500, while ICICI Bank beats them at Rs 2,000.
4. There are limits.
The amounts must fall within the credit limits of the new bank. Depending the type of card, the bank will give you a credit limit.
This limit can be enhanced once you have a relationship with the bank. They will look at your income, spending and payment pattern.
Before they enhance it, they will go by the limits they put on each card. Beyond the stated credit limit, you will not able to spend on your card. And, the amount you are revolving must be within this limit.
HDFC Bank does not allow the balance transfer to be more than 75 percent (International Gold), or 50 percent (International Silver) of its credit limit.
HSBC and ICICI Bank has it at 75 percent of the credit limit.
5. It's not forever.
Always check the tenure of the rate of interest. Sometimes, it is for just a month, sometimes six months. After the fixed time slot, the market rates of 2.95 percent per month are applicable.
6. Your card should not be brand new.
Some banks insist that your card is not just a month in existence. HSBC will take over the balance only if your card is at least six months old.
7. You will pay for it.
Nothing is free. You will have to pay the processing fee to avail of the new card. One-time transaction fees are also charged. For instance, Citibank charges 1.5 percent of the amount transferred or Rs 200 (whichever is higher, of course).
8. Speed up on your repayment.
Make paying back your loan your priority. You have a lower interest rate for a few months. Use it to your advantage.
Do not use the card at all.
What the banks will not tell you is that when you use your card, whatever you spend on will get an interest rate payment. This interest rate will be 2.95 percent and not the cheaper rate.
So who is offering what?
The market rate for revolving credit is 2.95 percent per month.
When banks try to woo you to transfer your balance to their cards, they offer a monthly interest rate in the vicinity of 1.75 percent. This is generally offered for six months, after which 2.95 percent is once again applicable.
~ Citibank: 1.75 percent per month. If you transfer Rs 25,000 or above, you get 250 reward points free. The bank is offering this till November 30, 2004.
For more information, please visit http://www.online.citibank.co.in/portal/citi_home_center.jsp
~ HDFC Bank: 1.25 percent per month (International Gold Credit card); 1.65 percent per month (other cards). It drops to 1.45 percent per month if you have an HDFC Bank account.
For more information, please
visit http://www.hdfcbank.com/creditcard/transferandsave/CC_whatisbaltransfer.asp
~ HSBC: Zero percent per month. Interest rate valid for three months (not six). Instead of the minimum transfer amount of Rs 10,000, only Rs 3,000 is required.
The bank has not stated how long the offer is on for. It is only valid on the HSBC Classic credit card.
For more information, please visit http://www.hsbc.co.in/in/personal/cards/default2.htm
~ ICICI Bank: 1.75 percent per month (Blue and Silver cards); 1.50 percent (Gold Card).
For more information, please visit http://www.icicibank.com/pfsuser/cards/creditcard/cc_home.htm
~ Standard Chartered Bank: 0.99 percent per month. There are various options for 6/12/24/36 months.
While the web site says you can transfer your balance for an interest rate of 1.75 percent per month, a call to the 24-hour helpline will inform you which scheme is currently on.
For more information, please visit http://www.standardchartered.com/in/cb/creditcard/cardfeatures.html
~ State Bank of India: Zero percent per month. Interest rate valid only for 75 days, not six months. The bank offers this till November 30, 2004.
For more information, please visit http://ww.sbicard.com/sbi/balancetransfer.html
"Don't worry," the helpful customer service executive cooed. "Just pay five percent. We shall carry forward the rest to the next month."
Well, congratulations. You just began an intense love affair with your bank.
They are going to love you even more than you love them. Want to know why?
Because, now, finally, they can make a nice packet on you.
On all the money you owe them, they are going to charge you 2.95 percent per month. That works out to 35.4 percent per annum.
What's more, you even start paying interest on any purchase you make. Buy a book, and you have to pay interest on this amount.
What's the way out?
You have two options.
1. Stop using the card.
The moment you run short of funds and have to revolve credit, stop using your card.
In fact, if your amount is huge, leave home without your card. Use cash or even another card till you clear your debts on the one you are revolving on.
Use the card only if you are certain you will clear all debts by the next month.
2. Switch credit cards.
All banks want people to take their credit cards.
And, one way they try to get your attention (and loyalty) is by offering what they call 'balance transfer':
~They pay back all the money you owe your bank on your card.
~All the money you owe the bank is transferred to them.
~They then charge you a lower interest rate on that amount so you end up paying less.
Assume that you are shifting to a card from Bank B from a Bank A card.
Bank B gives you a demand draft (in favour of Bank A) of the amount you owe Bank A.
You then need to make that payment to Bank A.
Until you get the demand draft or cheque, you continue making payments to Bank A.
When Bank A verifies the balance transfer (they will send you a statement to that effect), you stop paying them.
Now, how do you save?
Say you owe your bank Rs 25,000 on your credit card. And are paying 2.95 percent interest on it per month.
Let's say you opt for a balance transfer and are offered 1.65 percent for six months, during which time you are determined to pay up every single rupee (and not use the card at all).
Every month, you pay Rs 4,150 (for 5 months). In the last month, you pay Rs 4,250.
After six months, you will have totally cleared your debt.
You will pay Rs 1,099 as interest rate totally.
If you had stayed on with the earlier card, you would have paid Rs 2,060.
By switching cards, you saved Rs 961 on interest payment.
The savings may not appear to be much, but that is because you have been paying back a fair amount every month and not using your card at all.
If not, the lower interest rate would have made a bigger difference.
If you would like to see how much you can save, take a look at the simulator on the HDFC Bank web site: http://www.hdfcbank.com/creditcard/transferandsave/cc_btsimulator.asp
What you must know:
1.You can't stay with the same bank.
You will not be able to transfer credit from one card to another within the same bank.
To avail of the balance transfer facility, switch cards to another bank.
For instance, if you are revolving credit on the HDFC Gold Credit card, you will not be able to switch to the HDFC Silver Credit card. You will have to approach HSBC or ICICI Bank or any other card player.
2. Check if you have an account with the bank.
If you are switching your balance to a new card, the bank issuing that card may give you a better deal if you have an account with them.
Currently, HDFC Bank offers account holders just 1.45 percent per month to transfer balance to its Silver card (as against 1.65 percent for non-account holders).
3. There is a minimum amount.
The more you have in revolving credit, the more the banks will want you on board.
In fact, each bank will have a minimum amount, which you must be revolving.
Anything below and you will not be welcomed. To give you an indication, HDFC Bank currently asks for a minimum of Rs 7,500 (all cards) and Rs 20,000 (Gold card).
HSBC asks for at least Rs 10,000 for a Classic card and Rs 20,000 for the Gold.
Citibank takes a transfer for as low as Rs 2,500, while ICICI Bank beats them at Rs 2,000.
4. There are limits.
The amounts must fall within the credit limits of the new bank. Depending the type of card, the bank will give you a credit limit.
This limit can be enhanced once you have a relationship with the bank. They will look at your income, spending and payment pattern.
Before they enhance it, they will go by the limits they put on each card. Beyond the stated credit limit, you will not able to spend on your card. And, the amount you are revolving must be within this limit.
HDFC Bank does not allow the balance transfer to be more than 75 percent (International Gold), or 50 percent (International Silver) of its credit limit.
HSBC and ICICI Bank has it at 75 percent of the credit limit.
5. It's not forever.
Always check the tenure of the rate of interest. Sometimes, it is for just a month, sometimes six months. After the fixed time slot, the market rates of 2.95 percent per month are applicable.
6. Your card should not be brand new.
Some banks insist that your card is not just a month in existence. HSBC will take over the balance only if your card is at least six months old.
7. You will pay for it.
Nothing is free. You will have to pay the processing fee to avail of the new card. One-time transaction fees are also charged. For instance, Citibank charges 1.5 percent of the amount transferred or Rs 200 (whichever is higher, of course).
8. Speed up on your repayment.
Make paying back your loan your priority. You have a lower interest rate for a few months. Use it to your advantage.
Do not use the card at all.
What the banks will not tell you is that when you use your card, whatever you spend on will get an interest rate payment. This interest rate will be 2.95 percent and not the cheaper rate.
So who is offering what?
The market rate for revolving credit is 2.95 percent per month.
When banks try to woo you to transfer your balance to their cards, they offer a monthly interest rate in the vicinity of 1.75 percent. This is generally offered for six months, after which 2.95 percent is once again applicable.
~ Citibank: 1.75 percent per month. If you transfer Rs 25,000 or above, you get 250 reward points free. The bank is offering this till November 30, 2004.
For more information, please visit http://www.online.citibank.co.in/portal/citi_home_center.jsp
~ HDFC Bank: 1.25 percent per month (International Gold Credit card); 1.65 percent per month (other cards). It drops to 1.45 percent per month if you have an HDFC Bank account.
For more information, please
visit http://www.hdfcbank.com/creditcard/transferandsave/CC_whatisbaltransfer.asp
~ HSBC: Zero percent per month. Interest rate valid for three months (not six). Instead of the minimum transfer amount of Rs 10,000, only Rs 3,000 is required.
The bank has not stated how long the offer is on for. It is only valid on the HSBC Classic credit card.
For more information, please visit http://www.hsbc.co.in/in/personal/cards/default2.htm
~ ICICI Bank: 1.75 percent per month (Blue and Silver cards); 1.50 percent (Gold Card).
For more information, please visit http://www.icicibank.com/pfsuser/cards/creditcard/cc_home.htm
~ Standard Chartered Bank: 0.99 percent per month. There are various options for 6/12/24/36 months.
While the web site says you can transfer your balance for an interest rate of 1.75 percent per month, a call to the 24-hour helpline will inform you which scheme is currently on.
For more information, please visit http://www.standardchartered.com/in/cb/creditcard/cardfeatures.html
~ State Bank of India: Zero percent per month. Interest rate valid only for 75 days, not six months. The bank offers this till November 30, 2004.
For more information, please visit http://ww.sbicard.com/sbi/balancetransfer.html
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