How do Credit Cards Work?

byMehak BaglaLast Updated: June 13, 2023

Credit cards are financial tools that help you make purchases on e-commerce websites or at physical stores. When you use a credit card to pay the amount for your purchase, your card details are immediately sent to the merchant’s bank. The bank will then get authorization from the credit card’s network to further process your transaction. After this, the issuer will be notified to verify your information and either approve or reject your transaction, depending upon the details provided.

Now, if your transaction is approved, the required amount will be paid to the merchant and the transaction amount will be deducted from the pre-approved credit limit on your card. You will receive a statement of your transactions in the previous month at the end of your billing cycle. This statement will have all the details of your purchases, your previous and current credit balance, your minimum payment amount and the due date by which the billed amount must be paid to avoid any penalty.

The time period between the date when you made the purchase and the date by which you should pay your billed amount is termed as a grace period. If you repay the amount to the bank within this period, you would not be liable to pay any interest on your expenses. However, if you fail to repay the amount, and continue to carry it month on month, you would be charged high interest on the amount to be paid. Hence, it is better to manage your finances properly in order to avoid any additional charges. Doing so will also help you maintain your financial health and continue with a good credit score. Remember, making timely credit card payments will help your credit score, whereas failing to do so will hurt it.

How can you Apply for a Credit Card?

You can apply for a credit card using both, online and offline methods. As simple as it is to apply for a credit card, it is equally important to begin the process by deciding the type of credit card that you should buy.

You can do so by comparing the various types of credit cards available and then making the right choice, depending upon your specific needs. To decide which credit card you should buy, you can pick any one from the following-

  • Basic credit card
  • Zero credit card
  • Travel credit card
  • Fuel credit card
  • Shopping credit card
  • Reward credit card
  • Secured credit card
  • Low-interest credit card
  • Balance credit card
  • Cashback credit card
  • Entertainment credit card
  • Lifestyle credit card
  • Co-branded credit card
  • Business credit card
  • Prepaid credit card
  • Student credit card
  • Premium credit card

Now that you have made the comparison and decided on which credit card you want to go ahead with, you need to follow these steps-

  1. Visit the bank’s official website
  2. Click on “Apply” in the ‘Credit Cards’ section
  3. Enter personal details like your occupation, mobile number, monthly income, PIN code, etc.
  4. Select your preferred credit card and click on “Check Eligibility”
  5. If you meet all the credit card eligibility conditions required for the selected card, you be asked to proceed further with the application and enter details like your name, email address, date of birth, and PAN
  6. Move further and enter your residential address along with the PIN code
  7. After this, you will be asked to enter the details of your employment, like the company’s name, address, PIN code, and landline number
  8. Lastly, you will have to verify your mobile number using the OTP sent to your phone in order to complete the application process
Read More: How to Block & Unblock Your Credit Card : Complete Guide

After completing this process, you will receive a call from the bank/NBFC to suggest a time and place to complete the physical documentation process. The bank will send a field agent to your suggested location to do the same, post which your application process will be taken ahead.

It is important to note that your application may be rejected if you don’t meet any of the credit card eligibility conditions set by the bank or if you have applied for a credit card from the same issuer in the last 6 months.

Apply For Credit Card

How do credit cards work?
When you swipe your card to make purchases, your card details are sent to your bank by the merchant. Your bank then verifies your details and approves or rejects your transaction accordingly. The amount of purchase is then deducted from your credit limit and gets added to the billed amount for the given month.
How can I compare among the different types of credit cards?
You can choose the type of credit card depending on your specific needs. For instance, if you are a traveler and need to make airline or hotel reservations quite frequently, then you should opt for a travel credit card. On the other hand, if you are somebody who needs to travel to work on a daily basis, and makes a lot of expenses on fuel, then you should opt for a fuel credit card. Similarly, if you like to shop a lot, then a shopping credit card should be your choice among the other types of credit card options.
Can I also apply for a credit card offline?
Yes, you can apply for a credit card offline by visiting the bank’s branch. You will be asked to submit an application form along with the required documents like your ID proof, salary statement, etc.
What is grace period?
The time period between the date when you made the purchase and the date by which you should pay your billed amount is termed the grace period.

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