Eight important things to know about Credit cards

Welcome again to another exciting episode ‘Eight important things to know about Credit cards’ in ‘Finance and Personal finance’ blogging series. In the last episode we saw ‘Nine reason to know why we should avoid using Credit Card’. In this episode we will see what are the important thing to know before and after getting a credit card services from financial institutions/banks. By writing this I am not discouraging anyone to not to have a credit card. But we want to say that use the credit card wisely by reading the following points. In fact, and in short, we want to mention the criterion on which the credit card should be selected or avoided. Some points might seem to be familiar but still read it because they have the hidden information at the end of each point. Don’t miss it and keep reading.

• Annual Fee –

Most of the credit cards charge very high annual fee to keep the card activated and help you achieve their objective of buying something or paying fees, subscriptions etc. This fee varies between Rs.500/- to Rs 10000/- or even more. They also give a criterion that if a card holder spends some minimum amount over one year, they will waive off the annual fee. The trap is, card holder will have to pay the fee or transact for the minimum yearly amount to get zero annual fee. That minimum spending amount ranges from Rs50,000/- to Rs1,000,000/-. Middle class people generally opt for paying annual fees because they cannot afford to spend minimum yearly transactions. Now you may ask so what if people are paying the fees, why are we ignoring the benefits? So, my dear friends, there are several other factors that work as a gear to this mechanism. Let me explain. If card holder is getting 10% benefit on every purchase and is spending yearly Rs50000/-, he could get benefit of Rs.5000/- but if he I paying annual fee of 2500 a year, then he compromises on the benefit of discount i.e. Rs 5000 and earns only 2500. If card holders spend minimum yearly amount, only then they get the real benefits of discount. So Spending is one gear. Other gears are, Financial and other charges in case of default/s in payment, Interests on EMI, Frauds etc. We will discuss this shortly

• Financial charges and other charges–

Credit card service providing bank expects card holder to pay the dues or advance money used by card holder on time. If for any reason card holder fails to pay on time, banks apply penalties on the dues. Penalties are financial charges, interest rates up to 3 to 4 % per month which will be as high as 48-50% per year, GST @18%per annum. These are financial implications on the part of default in the credit cards. Moreover, the Credit Card Service providers inform CIBIL (Credit Rating Bureau of India Ltd) about the defaults/late payments etc. This impacts the credit score. Credit score below 750/1000 is considered a risk for lending personal loan, credit cards or other types of loans. It is not always you will not get loan at all if the score is less than 750, but you may get it at higher rate of interest because they feel there is risk in providing the loan to the low score borrower. It is simple that the impact is really deep. This also nullifies the annual fee waiver benefits. Because card holder ends up paying more on the fees, charges GST etc. than the Annual fee waiver. So you are actually not saving anything over annual fee.

Now some of you can say what is new in the above information? Keep reading below, because we still recommend to have a credit card on some grounds. Want to know more why we should have Credit card? We have already mentioned one reason. Read one more time above you might get one of the reasons.

• Interest rates on EMI –

Cardholder gets one awesome facility on credit cards, to spend for the desired goods/services/appliances/gadgets etc. and pay the amount in installments. The installments generally range from 3 months to 12 months. But these installments comes with the interest rate of more than 12 to 13%, probably with 14%. That means even after getting discounts you end up paying almost the same original price or sometimes even more than that. But sometimes, there are no cost EMIs option available. This gives a cardholder to enhance the standard of living. This in turn creates business opportunities and increases GDP of the country. Increase tax revenues and overall standard of living of the country. You may feel I am going far beyond the limit but really it is true. Just think if the same process is followed by at least 100,000 people in the country. But remember if the scheme is not about ‘no cost EMI’ then it is extra burden on customers pocket and then remember point number 1 where all the benefits of annual fee waiver is nullified.

               You may not know but, there are processing fees levied on EMI transaction This fee can be as low as 0.02% of total transaction value or Rs.100/- whichever is higher. Sometimes they waive this fee as well.

• Frauds – Real life examples

I can share my personal information about fraud. In first incident, I made payment of 11,200/- Rs through one of credit cards I had. But the payment failed due to low internet connectivity. There were no 4g services that time and cable net was a dream for millions. So, I paid entire amount in cash. But credit card sent me a bill for 11,200/- Rs.

When contacted vendor he simply and cleverly denied the payment through the Credit Card. When contacted Credit Card Services and showed them the payment failed SMS, they still denied my claim. Unfortunately, I had to settle the claim. I was not strong enough to complain or you can say was very little aware of the consumer forum.

For one service I paid twice. And the amount was not low. The vendor definitely ate the money but he also denied.

               In another incident, I took a credit card of RBL bank. I was told that the credit limit will be minimum Rs.100,000/- and the card will be free from annual fee. I received the card. I read the credit limit which was below Rs.100,000/- and the fee was Rs500/- annually. I did not even activate the card and contacted customer care over a call asking them to close the card. They asked for the reason and I explained the incident. The lady over call asked me to hold for few days, they are taking the complaint and will resolve the problem. I said OK, I will wait.

Later another lady called me saying that she has received a complaint to increase credit limit and waive the annual fee off for life. I confirmed the same. Lady asked me to wait for some time and came back saying please give an OTP sent on my mobile. I said ‘what!!!?? How can you ask for an OTP? Customer should never give the OTP; don’t you follow that?’ Lady said that since we all are working from home, we need to authenticate the customer. Moreover, see the message you have received in your mobile, it does not have any vendor name so you can trust us.’ With tremendous suspicion I purposely provided incorrect OTP. I immediately received a message that ‘Failed to make the payment on Torrent site due to incorrect OTP or inactive card’.

I wanted to verbally abuse the lady but she came to know about the incident and she disconnected call. I tried calling the same number which was not reachable. I SMS the number but it never reached there because I received message as invalid number, message cannot be delivered. I checked the number in caller ID ap. It was clearly showing the name as ‘RBL bank Fraud caller’. I also read about the number on google search sites that the number is from Africa and is specialized in doing such call with RBL bank Credit card customers.

Course of action for me was to complaint and I did the same. I called customer care and they said they cannot do anything in this regard and customer needs to contact local police and record complaint there. But the poor banking staff doesn’t understand that someone is trying to do fraud using their brand name and that brand itself do not want to do anything to stop such frauds.

It also gives suspicion in the mind that, ‘is it the banking staffs themselves are doing this fraud?’ the suspicion is because how that lady knew that I had filed complaint to increase the credit limit? How that fraud number clearly told me my credit card number’s last four digits? How the OTP was generated without them knowing the all 16-digit card number? Or is it that the fraudster knew the entire credit card number because of which the lady could do the transaction? Who gave this information to the fraud lady? If the lady independently got the information from the bank, may be by hacking the systems etc. then isn’t there a reasonable chance to say that there are loopholes in bank’s security system?

All this leads to suspicion in my mind and may be in your mind too after reading this incident. Now you can also ask why did you not file complaint? What complaint can I file because no offence or fraud was committed? It was attempted to fraud which was cleverly defended.

Since someone stored number as fraud on caller ID app, that means someone has complained already and nothing happened because still I am getting the same fraud call. What actions were taken on their complaints?

There are more than a million fraud cases all over the world, some incidents were resolved some never got resolved and people had to suffer.

               Fraud can cause serious financial damage to card holders and it can ruin the dream of saving some money and having the articles that you dreamt of.

• Using future income now –

While we agree Credit card gives some freedom from finances and we can buy the goods and services right then when we desire them. However, you are making sufficient arrangements that your future income will be used at current dates and you are already reducing your finances in future. This will also ensure that you every time will spend the money in advance before even you earn them. So, you are deteriorating or damaging your future financial condition. Then some people say we cannot save enough money and the main reason is using credit card.

               Imagine you do not have a credit card. Now you will buy only those goods which are absolutely essential to you and refrain using money for that purpose for which you actually do not have money or are seriously not needed for you or are luxury goods. Think again.

• Take care While transacting overseas and on foreign sites –

I have observed one thing that on most of the foreign vendor sites, when we use the credit card, it does not require OTP or other authentication. Money gets straightway deducted from the balance of credit card.

It seems this authentication process is stricter in India or very few other countries. However, the law enforcement is more impactful in many foreign countries but is poor in India. Unfortunately, it is true. The fraud cases are quickly resolved in foreign countries than in India. It seems their cyber laws are stricter, impactful and implemented with great enforcement. People also follow the rules strictly.

For example, when I visited US, San Francisco, San Mateo and Los Angeles, all cab drivers be it hotel cab driver or Uber drivers or private cab drivers, were every time specifically mentioning that, ‘look gentleman, if you do not wear seat belt, I am fine with that, but if police catch you then you will have to bear the penalty of only $300. Now think and decide if you still don’t want to wear seat belts’.

See how great respect they have for law and how they themselves are threatened and show the threat of the law. But in our country if police catch you, people say ‘you don’t know my father is in power’, ‘we will bribe police, it is a matter of just 100 to 200 Rs.’ etc.

So, getting back to law enforcement for financial crimes, foreign developed countries are better in comparison with India. In India, it is observed that money (or bribery in any kind) plays key role, they can use to turn the correct side to incorrect and vice versa when it comes to court matters. This is a main reason why common people stay away from police and legal matters.

Another reason is the court matters goes on and on for long time. Many cases take more than 5 years for resolution. So, people think instead of wasting money on lawyers and spending years on cases, it is better to stay away from court and legal matters.

               Almost all the time the court cases are resolved very quickly when the media is behind the case, when the matter is of a big shot person, matter is political. But the matters that belong to common people are kept aside for years, in India.

Classic example is one of the political parties forced Supreme Court of India to open the court in the mid-night by 3 o’clock for trial. The case went on for several hours and came to some conclusions in the matter. You can search on internet for this case and can gain insight of the law system of India.

               It is unfortunate but truth of India. It is not that I don’t love my country but sometimes we have to accept the facts too. Moreover, we have democracy so I can speak but in countries like China no one can raise a finger or eyes even over government or law system.

               All in all, it is very important to use credit cards wisely while using it on overseas sites/aps etc.

• Never share sensitive information and keep card details secretly –

Banks and other financial institutions always send us the messages to keep the sensitive information about the credit cards, account numbers, government generated identification codes or ID cards like PAN number, Adhar Card etc. Nothing new about it.

But new thing is never keep your credit cards on open spaces, visible to every visitor of your house. As I mentioned in point #6 above, that mere credit card number and CVV number at the back side of the credit card (secret code for American Express is on front side) can make you do the transaction without generating OTP. It will be dangerous if the amount is high and you do not block the card and inform about the fraud to card service provider. It is MUST that we all keep Credit cards in safe custody. Keep it safe as if it is like extra organ of your body.

• Block the cards immediately –

Frauds and misuse of credit cards is the most committed financial crime worldwide. Hence even after keeping the credit cards in safe custody, some fraud may happen, block it immediately.

Many card service providers give guarantee of no loss if we inform about the frauds within 72 hours of frauds. There will be just a small penalty or liability on us which is as low as Rs.100/- (it is zero for many cards service providers).

Blocking the card upon fraud is utmost important to stop any financial liability. For that, know the process of blocking it (generally it is just by calling from registered mobile number). It is also important that the number you calling from is registered mobile number for credit card. In this case the blocking will be easy. If you call from different number then only an authentication process comes in to place, but still you can block card, nothing to worry about.

What important is to use the tool of blocking the card in case of fraud.