Sunday, May 17, 2009
Friday, May 8, 2009
Thursday, May 7, 2009
Why pay? Just use and forget!
Why should we bother paying back? With the number of banks and their eagerness to sell cards, I could get one new card every month, use it to the fullest and then just throw the card away!!
Well this would have been a great thing to do, except that we will be hurting our own credit history.
Every bank cross-checks this list for the defaulters before issuing credit to any individual.
So in case I default in a credit card now and apply for a home loan 5-10 years from now, my home loan application will be rejected due to my bad credit history. And this is applicable to all kinds of loan.
In fact, multi-national banks have gone a step ahead. They have inter-linked their operations worldwide.
I know a case in an MNC wherein a customer called from US to enquire about the outstanding on his card, which he had used 7-8 years ago. His outstanding was only Rs.80.00. When I enquired on how I could help him, he told that his home loan application in US got rejected due to the outstanding on his credit card in India. He was labeled as a defaulter for an amount of Rs. 80.00!! When I dug deeper into his account details, the outstanding amount was for Card theft insurance and not even a principal!!
Therefore the onus is on us to make sure that we use the card carefully. The banks will be getting more serious on the quality of the loans to be issued after the sub-prime debacle in US.
Some tips to use a credit card in a safe way.
1) Make full payment of the outstanding.
2) Use auto-funds transfer facility in the savings bank account to avoid last minute cheque lost/delay cases. Make sure that there are enough funds in the account on that day.
3) Try not to use credit cards while visiting third world countries like Thailand and other south-east nations. Card phishing is a very common activity there. Get prepaid international card instead.
4) Do not get over dependent on the card for meeting your expenses. Card payment collectors can be quite embarrassing.
5) Use cards only in known/reputed web sites. Try not using it for things like adult entertainment, online lottery, etc. There is a high possibility that card details will be phished.
6) If going at places like local Bar, ask them to swipe the card in front of you. Have seen numerous cases when the card is swiped multiple times for the same amount at these places.
7) Try and keep a track of your purchases through card and cross check them with your monthly bill.
8) If unsure about the available limit, call customer care number and confirm before spending.
9) In case you are not using the card, call customer care and ask them to close the account. Don’t keep the account active under any circumstances. It leaves a loop hole for cheating.
10) Try and avoid taking loans which charge EMI directly to your cards. They are much more costly than similar loan products available otherwise.
11) Do not give your credit card to any one unknown. Not even to bank employees. I have come across cases during my small career in cards collection, where con men went to customers’ residence posing as a bank employee and asked the customer to hand over the silver card so that bank could issue them a gold level card. The customer, without cross checking the employee’s credentials and without cutting across the card, handed it over to the con men. The customer ended up with a bill of 50,000.00 at the end of the month. And he was forced to pay it too.
12) Cut the magnetic strip before disposing the card. Or even when sending it to the bank for cancellation.
13) Call the customer care as soon as you realise that you have lost your card.
14) Try to read the fine prints of the card application form if and when the time permits.
This list is not exhaustive though. We have to be careful, always. Today, plastic is as good as real money. A small noting of few numbers can cost u a good deal of money. Always be careful about your card. Its your liability.
Hope that the above details are useful to all. In case anyone has any doubts, please feel free to scribble back.
Friday, May 1, 2009
· Non Payment/Part Payment
If we make part payment for a particular month (anywhere between MAD and Total Amount Due), we will be charged interest from the time we purchased the items and not from the billing date. So if I purchased the item on 9th of the month, I will be charged interest for the whole period of 60 days. That is from 09/08/08 to 08/10/08 (the third billing cycle).
If we are not able to pay even the MAD before or by the due date, we will be charged with Late Payment Fees. The fine depends on the type of card we are issued. A gold card will be charged higher fees when compared to a silver card. It can range anywhere between Rs. 250.00 to Rs. 1000.00!!
So if I am not able to make any payment from one billing cycle to another, I will be charged with both Interest and Late payment fees.
· Cash Withdrawal
If we withdraw cash from our card, there are two charges that would be applicable to us. 1) Cash Withdrawal Charges. 2) Interest.
Cash withdrawal charges are usually a flat fee of 500.00 or 2.5% (depends on the card to card) of the amount withdrawn, whichever is higher.
The rate of interest charged is 36% pa. This amount is charged from the day we withdraw cash. So effectively, there is no interest free period for the cash withdrawn.
At the same time, when we are paying the amount after withdrawing the cash, we have to calculate the interest for the period and deposit that too. This has to be done because the amount that we pay to the card usually gets split the following way:
2) Other Charges
3) Top-up features.
So when we make cash withdrawal of 10k and make payment only of 10 k on the due date, there will be some principle amount that will be left as outstanding. The 10k will first be used for interest of that period, and then the cash withdrawal charges will be cleared. Finally the left over amount will be debited against the principal. We will be charged interest on that principal amount again in the next month’s bill.
Another charge is Over the Limit Charge. This happens when we unknowingly use the card for more than the prescribed limit. For example in a month I use the card heavily and forget the total amount I have utilized. So when I go for shopping again, I have only Rs. 5000.00 as my available limit. Instead I end up shopping for Rs. 10000.00. The credit card company will approve my transaction for Rs.10000.00 if I have a perfect payment history. They would not want a customer of theirs’ in an embarrassing situation.
Now, since I have over shot my credit limit, I will be charged will over the limit charges.
· Unwanted Top ups
Credit cards have become a very sophisticated instrument from the time they were introduced. Many new products in the insurance arena have made keeping in mind this particular instrument. Insurance companies have tied up with various banks to offer their insurance product, both life and non-life, with the credit card. Some of the types of insurance offered on the card are:
2) Card Theft Insurance
3) Cover on credit card bill (in case the card holder passes away)
4) Life Insurance (for Air travelling only), etc.
The premiums for these products are all charged on the credit card, usually on monthly basis.
If we have applied to any of these products, then it is ok. But usually we do not. So how do they end up in our bills?
We are asked to fill a form while applying for the credit card. These products are there on the form. But due to negligence on our part, we over-look all of it. We just sign at the dotted line and give the form back to the agent, asking him to fill in the details. The agent in turn marks all these top-ups for us. And they end up in our monthly bills.
The best way to handle this is to fill in the form carefully. If you don’t want any product, put a cross in the check box. DO NOT LEAVE IT EMPTY.
In case they still end up in the bill, call the customer care immediately and ask them to cancel the product and reverse the charges. Do not postpone it because of the size of amount.
· Free Balance transfer
Balance transfer is a tempting offer card issuers give to their competitors’ customer base. The offer says free balance transfer for 6 months. Well that is the case. However, not the whole balance is carried free for the six month period. A card holder needs to make a minimum payment, even in case of balance transfer. Therefore, basically it means that one can enjoy a period of 6 months as interest free if he keeps paying the minimum amount due. However, full payment has to be done for the purchases made in the new card after the balance transfer. They will not be a part of the interest free period.
Will come back with why should we pay back our bills and a few tips in the next one.
Thursday, April 30, 2009
So how does bank makes money? Well the primary source of income for bank is the transaction fees that it earns every time someone swipes the card. So if I go and purchase goods worth Rs. 1000.00 from Globus (called merchant), I will be charged only 1000 bucks in my card. Globus in turn will pay my credit card issuer 2% as transaction fees. This 2% is shared by my credit card issuer, Globus’s bank and Visa/Master card. The underlying assumption for this fee is that I will not purchase anything if I don’t have a card. The other source of income for bank is the customers who don’t pay the whole amount due by the due date.
Let us understand the basics of the card before we get to the usage part.
Item 1: Statement Date: This is the date on which statement is generated every month.
Item 2: Payment Due Date: This is the date by which one needs to clear the total amount due if he/she does not want to pay any charges/fees to the bank.
Item 3: Credit Limit: A Credit Card is issued to an individual based on his income and his spending pattern. The bank has all these details as you operate your salary account in it. It will approach you through one of its agent and ask you to fill an application form. Once you have filled in the form with all the details, the application is processed by the credit department of the bank.
The Credit department, based on pre-requisites, decides on the credit limit of the card. So in the above case, credit limit is Rs. 1.19 Lakh. This is the maximum amount till which the cardholder can spend from the particular credit card during one credit cycle.
Item 4: Available Credit Limit: This is the maximum amount that CC holder can spend till he clears his outstanding amount. Once he clears his outstanding, the available credit limit will be equal to his actual credit limit.
Item 5: Cash Limit: This is the amount up to which he can withdraw cash from an ATM. This is a part of the credit limit itself and not an extra limit. So if he exhausts his available credit limit, he will not have any cash limit either.
Item 6: Transactions: These are the details of his transaction. It tells him when, which shop and how much did he spent. At times, the name of the shop may appear different than where you swipe your card. This happens when the shop’s name and the name used for banking purpose is different. The transaction details show the banking name of the merchant. It will have all the transactions from 09/07/08 to 08/08/08.
Item 7: Opening Balance: This amount was his previous month’s outstanding.
Item 8: Payments/Credits: This is the amount that he has paid during the period 09/07/08 to 08/08/08.
Item 9: Total Due: This is the total outstanding that he needs to clear on 28/08/08.
Item 10: Current Due: Also known as MINIMUM AMOUNT DUE, it is usually 5% of the total outstanding or Rs. 200, whichever is higher.
The best way to use the credit card is by the following way:
Try to make maximum purchase on the date after the statement date of the card. In the above case, on the 9th of every month. So if he swipes the card for Rs. 1 lakh on 09/08/08, the amount will be reflected in his credit card statement for the month of September, i.e. on 08/09/08. He gets a 30 Day Credit free period.
Now, make payment of the total outstanding of the statement (Rs. 1 Lakh) on the payment due date, i.e. 28/09/08 in above example. That way he gets another 20 day credit free period.
This way one can use 1 lakh rupees for 50 days without making any interest payment.
Will continue with the other side of the cards in the next section.