A credit card is a payment card, typically issued by a bank, that allows users to pay for goods and services on credit. Credit cards come with a pre-approved credit limit based on the cardholder's financial credibility.
Credit cards can be used to make instant digital payments at businesses that accept them. They can even be used online by entering the credit card details to make purchases on credit.
Like any other line of credit, the debt accrued through using a credit card has to be paid off with interest. However, if used properly, credit cards can be used without having to ever pay interest.
This article will discuss what credit cards are and how they work.
News Update
The Reserve Bank of India (RBI) has introduced three major credit and lending rule changes for 2026, including weekly credit score updates instead of monthly, elimination of prepayment charges on floating-rate loans, and stricter monitoring of inactive bank accounts to curb fraud.
- (As reported by Times Bull on January 20, 2026)
Most credit cards will have the following components. However, the position and design may vary based on the issuer or bank. Let’s look at the components -
Bank Name
This is the credit card’s branding, the bank’s name or the issuer’s name and logo. If you own a co-branded credit card, the logo of that brand will also be printed on your card.
Card Number
This is a string of 16-digits which is unique for each card.
Cardholder’s Name
The name of the person who is authorized to use the card for any transaction.
Dates
This includes the ‘Valid from’ and ‘Valid through’ dates. You need to provide the card’s expiration date when using the card online.
Magnetic Strip
This may be missing in some newer credit cards. However, this helps in swiping the card, and it also has all your information.
Signature Panel
This is where the cardholder is supposed to sign. Your credit card is not valid without your signature.
EMV Chip
This is a small microprocessor-based integrated circuit. This helps to generate a single-use code for every transaction, which makes it harder for fraudsters to steal your data.
Hologram
This is also a security feature as it helps you distinguish a real credit card from a fake one.
Payment Network
Your card can be either a VISA, RuPay, or a MasterCard. The logo helps identify which network it belongs to.
Contactless Indicator
This is a symbol that indicates that your credit card can be used by just tapping it. It generally looks like a WiFi symbol.
CVC/CVV Number
The Card Verification Value (CVV) or the Card Verification Code (CVC) is a unique 3-digit code. This is used to authorise your payments.
Customer Care Contact
Most cards have their helpline number printed on the card. If your card is stolen or you have misplaced it, you must call this number immediately.
A credit card, if used smartly, can be a useful tool to build your financial history, creditworthiness, etc. Here are some reasons for using a credit card, or a few benefits of using a credit card -
When you pay for something using your credit card, the amount is deducted from your credit limit. Your bank account balance remains untouched.
Credit cards have various offers across categories like dining, movie tickets, flight and hotel bookings, cashback, etc. These, when used properly, can help you save some funds.
Since you don’t have to make the payment right away, you can shop without any worries. (However, do remember that you will have to pay it later. Thus, don’t overspend!)
Using a credit card responsibly would mean utilizing the credit limit, but also paying off the bills within the due date. This improves your credit score, history, and overall creditworthiness.
Most credit cards offer purchase protection, which means insurance against a new purchase. It can be availed within a small time period after the purchase, in case of any fraud or any other issues.
As a credit card holder, you can convert your purchases into easy EMIs. You don’t need any extra documents or loans to buy things on EMIs.
Learn More About: Top 10 best credit cards in India
Eligibility for credit cards varies based on the bank or the credit card issuer. Here is a general eligibility criterion for availing of credit cards -
Age - Your age must be at least 18.
Income - You must have a stable source of income.
Credit Score - You should have a good credit history and a high credit score.
Documents - You should possess solid identity, address, and income proof.
Residency Status - You should be an Indian resident, in most cases.
Credit cards are incredibly convenient financial products that can be used to purchase various goods and services. Similar to a loan, you can use the amount from your credit card limit to pay for what you want and then repay the same at a later date to your credit card issuer/bank.
For example, let’s say you have purchased an item worth ₹20,000. You have the option of repaying this amount in 2 ways -
You can repay the entire amount before your due date and therefore avoid paying interest
You can pay just the minimum amount due before the due date and pay the rest through installments. In this case, you will be charged an interest rate that is usually quite hefty, and this entire amount will be a part of your finance charge.
A finance charge or a funding fee is a fee associated with the use of credit. These charges usually include interest, but can include other fees, charges, and penalties associated with using the card.
When a legitimate card issuer sends you your monthly statement, it lists all your loan amounts, purchases, and payments. The way the loan fee appears on your statement is dependent on your card issuer.
For example, it may be listed in a separate loan fee category. Or it may include all the elements that make up the loan fee, in the list, along with your purchases and other activities.
Some common types of finance charges are:
Late payment fees
Annual fees
There are several ways a credit card issuer can derive loan fees, but most seem to use the "average daily balance" method and calculate the amount daily.
Step 1 : Divide the APR by 365 (or 360) to get the daily rate. To elaborate, a credit card with an APR of 12.78% would have a daily interest rate of 0.035%.
Step 2 : The daily interest rate is, then, multiplied by the total number of days in the period of accounting of the statement to calculate the interest rate for each individual loan fee.
Just like in the previous example, if the accounting period is 28 days, and the APR is 12.78%, the accounting interest rate would be 0.98%.
Step 3 : Multiply this interest rate by the amount of debt the APR covers. In this example, if you owe ₹4,000, you will be charged a loan fee of ₹12.52 on your statement.
In this section, let us understand what the unbilled amount in credit card.
Let’s assume that your credit card statement is generated on the 5th of every month. Your credit card statement will include every transaction made between the 6th of the previous month and the 5th of the current month.
During said period, if you make a transaction of a certain amount from your credit card limit, you would have to pay this amount in your current bill.
But if you make a transaction of any amount on the 6th of the current month, on the day your credit card statement arrives, it would be called an unbilled amount because the amount is spent after the credit card statement has been generated.
If you wish to repay the unbilled amount in the following month, you can easily do so if the amount is small. However, if the outstanding bill exceeds your ability to pay off, you would have approximately 20 days to convert said amount into an equated monthly installment.
An outstanding amount on a credit card is the amount one owes to the lender or in this case, the credit card provider.
An outstanding amount on credit card may include these following charges :
Purchases that were made
Cash Advances
Balance Transfers (if any)
Interest Charges
Fees
A lump sum outstanding balance can lower one's credit score significantly, regardless of whether they pay their credit card bills timely each month. This is a result of credit utilization ratio.
The utilization rate is the ratio of credit used with respect to the limit available. If your credit card limit is ₹8,500 and you spend ₹7,000 out of it, it shall affect your score. This corresponds to a credit utilization of approximately 80%. Ideally, your credit utilization ratio should be between 30% to 50%.
A high loan utilization discourages lenders from lending any money, and your credit rating will suffer alongside.
The way to save more and improve your credit score is to pay off your outstanding balance each month on time.
Elevate Your Spending with Premium Credit Cards
After reading all about credit cards, you might be wondering how they differ from debit cards. Here is a small comparison between credit cards and debit cards -
|
Debit Cards |
Credit Cards |
|---|---|
|
You use funds from your savings or current account |
You use funds provided as credit from the card issuer. |
|
Anyone who has a savings or current account is eligible. |
Eligibility depends on your age, income, credit score, etc. |
|
When you make a payment, the amount is directly debited from your account. |
When you make a payment, the amount is not deducted. It is billed, and the amount must be paid before a certain due date. |
|
There is no interest charged. |
If you do not make the payment within the due date, a hefty interest rate is charged on the outstanding amount. |
|
EMI options are available in some cases. |
EMI options are available in almost all cases. |
|
It may come with annual fees and charges |
Comes with annual fees, late payment fees, joining fees, etc. |
|
Minimum rewards, cashback, offers, and privileges are provided. |
Credit cards offer attractive rewards and privileges such as Air Miles, Cashback, Reward Points, etc. |
|
There is usually a daily spending limit. |
There is a daily and monthly spending limit, as well as a credit limit. |
|
You get minimal security in case you lose the card. |
Usually comes with zero liability insurance and is highly secure. |
|
Cash withdrawals are generally free within a specified limit |
Cash withdrawals attract a heavy interest and fee. |
|
Usually stays with you till you have your bank account. |
You can close it after making the required payments when you don’t need it anymore. |
If you had questions regarding a credit card or certain offbeat terms associated with it, hopefully, they have been answered. Having a good understanding of credit can prevent you from falling into debt traps and help you manage your finances better.
Sometimes we end up securing a credit card that is not ideal for our lifestyle and leads to monetary losses. This is why it is important to research and find which card suits you best.
Fortunately, finding the best credit card for you is now easier than ever. Go to the Moneyview website or install the app to find the credit card for you.
Disclaimer
The starting interest rate depends on factors such as credit history, financial obligations, specific lender's criteria and Terms and conditions. Moneyview is a digital lending platform; all loans are evaluated and disbursed by our lending partners, who are registered as Non-Banking Financial Companies or Banks with the Reserve Bank of India.
This article is for informational purposes only and does not constitute financial or legal advice. Always consult with your financial advisor for specific guidance.
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