Five lesser known credit card usage facts

In today’s financial world credit cards are an essential part of one’s wallet. For most, they act as a preferred payment mechanism. Credit cards are actually a means of short term borrowing from the issuer. While using a credit card, one should be judicious and timely in repayment to avoid the huge charges imposed on delayed payment. There are also other issues relating to credit cards that the cardholder should be aware of but is often ignored.

Here are five important but lesser know card usage facts that you must be aware of:

Cash withdrawals attract charges and interest
Withdrawing cash should be the last thing to do while using credit cards. In most cases, there is a fixed charge for cash withdrawals using a credit card, in most cases. To make it worse there is no interest free period. The interest starts from the day of cash withdrawal. This is contrary to when you use your card to make payments. For this, you pay interest from the ‘bill due date’ and not from the date of making the payment.

Insurance is conditional
Some credit cards offer insurance to the user. Though insurance may come free to the cardholder there is always a long list of conditions. Some credit cards offer only accidental insurance cover. In some cases the banks offer bill pay insurance facilities – wherein the bills outstanding at the time of death up to a certain sum are paid by the insurance company. Some of these insurance covers cease to exist if the card is not used for a certain number of times in a year or a certain value of transactions is not carried out. So, do read through the terms and conditions.

They eat into your home loan eligibility
If you are holding too many credit cards, then the same can eat into home loan eligibility. If you are a heavy user of the credit cards, then the bank looks at you with some amount of suspicion. The credit utilisation ratio, or the usage of the card against the credit limit granted, should be below 30% for each credit card and for all credit cards put together. Even if you are not using a credit card that you hold, the lender while assessing your home loan may bring down your eligibility to some extent to factor in the credit limit offered on credit cards. So the more credit cards you hold, the more they eat into your home loan eligibility.

Reward points die
If you are a regular user of a credit card, you may get a lot of reward points. Reward points are given at a certain rate such as one credit card reward point for every Rs 100 spent or so. Certain deals have additional reward points over and above the normal points earned. Each of these reward points comes with a validity date. If you fail to use a reward point by the validity date, then they expire. Some reward points can be used at a pre-defined rate for settling outstanding credit card bills. And in some cases the reward points can be used for purchasing goods and services depending on the terms and conditions of the credit cards. The reward points earned and those that are expiring at a given date is mentioned in the card statement. So you should track the reward points status with each bill and use them before they expire.

Cashback is conditional
Though some credit cards make flashy cash back advertisements, they also come with a long list of conditions. In most cases to be eligible for cash back the transaction has to be of above a certain threshold limit. There is also a cap on the quantum of the cashback you get. Some issuers also prescribe that the cashback is payable if the payment is carried out on the swipe machine of the card issuing bank or on the payment gateway of the card issuing bank.