Banks and financial institutions issue credit cards to help customers borrow funds to pay for goods or services. However, to understand credit cards and their features better, you must know specific terms associated with credit cards.
1. Credit limit
The credit limit is the maximum amount you can spend using your credit card. Your credit limit is decided by the lender (the bank or financial institution issuing the credit card) based on various factors, including your credit score and the type of credit card you choose.
2. Due date
Credit cards have what is referred to as a repayment cycle. The due date is an integral part of it. The due date is the date before which you must repay your credit card dues. You must pay the minimum amount due if you can only pay part of the amount. You will be charged a late fee if you fail to make this payment before the due date.
3. Billing cycle
The credit card billing cycle is the time elapsed between two generated bill statements. Let us understand this term with an example. Suppose your credit card bill is generated on the 4th of every month. Your billing cycle will start on the 5th of each month and end on the 3rd of the following month. The due date falls within the billing cycle.
4. Cash limit
Your cash limit as a credit card holder is the total amount of cash you can withdraw from an ATM using your credit card.
5. Minimum amount due
The minimum amount due is the minimum amount that you must pay before the due date. It is a small percentage of the total outstanding amount on your credit card.
6. Balance transfer
If you are unsatisfied with the interest rates quoted by your current lender and wish to transfer your outstanding credit card balance to another lender, you can do so through a balance transfer process.
7. Credit Verification Value (CVV)
Your credit card contains a three-digit number on its back called the Credit Verification Value or CVV. The CVV number is used to make online payments and verify a credit card’s legitimacy.
How to effectively use a credit card?
Here are a few tips to effectively use a credit card:
1. Keep the bill generation date in mind
Knowing the credit card bill generation date helps you avoid paying late fees. Keeping a reminder on your phone can go a long way in helping you keep track of the bill generation date.
2. Pay your bills on time
You must always pay your credit card bills on time. It helps you avoid piling-up up debt that can harm your financial well-being in the long run.
3. Remember the rewards!
Credit cards offer various rewards and cashback offers. IDFC FIRST Bank is especially popular in this respect, providing various rewards on each credit card.
4. Plan your repayment
Planning your credit card repayment is key to avoiding a piling of debt. Stay ahead of your credit card dues by planning.
5. Be mindful
It always helps to be mindful of your credit card repayment plan. It translates to setting reminders for your due date, paying your bills on time, and keeping an eye out for rewards and cashback offers.
Knowing the above terms is crucial before getting a credit card. You can better manage your credit card and earn exciting rewards and cashback.
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