Five questions you should ask before applying for a credit card

Many people apply for a credit card without understanding how it works. The easy money entices them to swipe the card irresponsibly without thinking how to pay it back. The surprise comes later when they receive the statement loaded with heavy penalty and interest charges.

Here are five questions you should ask before applying for a credit card:

What happens when you miss the due date for payment?

Sometimes we get pre-occupied and by mistake miss the due date for payment .  For such innocent mistakes Reserve Bank of India (RBI) gives a grace period of 3 days from the due date to pay your bill. But if you don’t pay the bill even during this grace period then high interest of 3-4% per month is charged on your credit card.  The bitter part is the interest is charged not from the due date but from the date of your purchase. 

A missed or late payment can also have an adverse impact on your credit score. The longer your payment remains due, the more your credit score will drop.

What happens if you just pay the minimum due amount?

If you are short of funds the issuer gives you an option to pay minimum due amount . Here you need to know that minimum due amount is only for avoiding late charges.  The credit card company will continue to charge you interest on the unpaid bill. However, another advantage of paying a minimum amount due is it does not affect your credit score and damage your credit history.

What happens when you pay the bill partially?

In a cash crunch situation we often think to pay the bill partially. The partial payment reduces the burden, as the remaining amount can be paid in the next month. Well, the partial payment might help you to reduce the burden but you need to know  that the credit card company still charges you interest on the whole amount. Partial payment doesn’t affect the interest on late payment. 

What is trailing interest on a credit card?

If you haven’t paid your credit card bill, but made fresh purchases thinking you will pay the entire bill this time then you might be in for a surprise.  This is because interest on fresh purchases will be charged from the day of purchase and you will not get any grace period for your fresh purchases. So think before you shop , if your last month’s credit card bill is still unpaid.

How is interest free period calculated?

Credit cards extend to you an interest-free loan for around 15-20 days based on your date of purchase. But you can maximize this interest-free period to 45-50 days by scheduling your big purchases at the beginning of the credit cycle. Let’s see how you can do it. Suppose, your bill is generated on the 15th of every month and the due date for payment is the 30th of every month. Then by scheduling your big spending around 16th you can push the billing to the next month. However, if you make the same purchase before the 15th you would only get 15-20 days as the purchase will be billed in the same month.

Money9 says that credit cards can prove to be your friend in need if used wisely.  But if you don’t use it wisely and spend more than you can repay, then you can also get trapped in a vicious circle of debt. So let’s use plastic money wisely & responsibly.