Credit card companies lure their customers with attractive offers like 2 movie tickets free in one month on the use of a credit card, cashback offers on various credit card usage, or no interest on EMI on the use of a credit card. Credit card companies invite their potential customers with such tempting offers. You can see HDFC or SBI kiosks in malls and markets to tell the customers about the advantages of having a credit card. There are certainly some advantages to keeping a credit card and therefore it has become indispensable. However, these advantages apply only if the credit card is used prudently and wisely. The disadvantages of credit cards also cannot be ignored.
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Have you faced a Credit card scam?
Manav, who was a user of Yes Bank, received a call from one of their staff informing him of a new credit card scheme. The staff member promised Manav a lifetime free credit card for accepting the proposal. Agreeing to the condition of lifetime free usage, Manav went ahead and got the credit card.
However, upon using the card for the first month, Manav was charged with Rs 1499 usage fee. He immediately raised the issue to the bank but was neglected and asked to file a complaint with customer support. Customer care replied promising a resolution within a week, only for a mail to be sent after a week mentioning the ticket was closed and there was no sales error.
Manav sent out a second complaint on the bank portal. He received a phone call from the said staff who sold him the credit card and was asked to withdraw the complaint. This issue went on for two weeks, and the bank again refused to settle the case. Finally, Manav got to know about the RBI Ombudsman.
What is the RBI Ombudsman?
This Banking Ombudsman is a quasi-judicial authority created in 2006, and the authority was created as per a decision made by the Government of India to enable the resolution of complaints of customers of banks relating to certain services rendered by the banks.
Consumers can file a complaint against any bank on the RBI portal. The RBI then investigates the matter and takes relevant action.
What do I if bank charges Credit Card fees without asking?
Manav filed his complaint with the RBI Ombudsman, along with all proofs such as call recordings and images from text messages. Following this, Manav continued to get calls and emails from the concerned bank asking him to pick between one-year free usage of the card or a full refund. However, Manav stood his ground and refused to give in. Manav also notified the RBI Helpline of the constant harassment from the concerned bank. He was advised to ignore them and not revert. Finally, he received a mail from the bank stating that his charges had been refunded and his credit card was now lifetime free.
How to protect myself from credit card scams?
- Whenever a bank staff offers a clause or offer which is not explicitly mentioned on the scheme brochure, ask them to mail it to you from their official work email ID. Monitor your bank statement for a month after getting the new card, and raise a dispute for any unclear card transactions to your bank customer care portal.
- Record all phone conversations, especially with unknown numbers especially.
- If the bank is not helping your case, then opt for complaining to the RBI ombudsman.
Watch the video below for more information on this case:
What are the benefits of using a Credit Card?
While Manav’s story has been a cautionary tale, one cannot deny that if used carefully, there are several advantages to a credit card.
1. Internet purchases
Credit Card allows you to purchase things online. A Credit Card has become an essential part of the internet economy and e-commerce as things can be bought online only through Credit Cards. Attractive discounts are offered on your purchase through Credit Card. You can get offers such as an extra 5% discount on purchasing through a credit card from a particular bank.
2. Reward points
Credit Cards give rewards for high usage such as airline tickets. You get some points on each Credit Card usage. These points can be accumulated over a period of time so you get a big discount on your next transaction when your reward points are redeemed.
3. Expenditure on behalf of the whole company
All employees who spend on the company’s behalf should do it through Credit Card because the company reimburses the entire amount within 45 days and you get the benefit of reward points which can be redeemed on your next purchase.
4. Statement of transactions
It is difficult to track cash payments. Hence, if you have made payments through Credit Card, you can easily track it at the end of every month.
5. Secure Purchase
If you purchase online and do not like it, you can easily return it without any cost because your Credit Card company pays on your behalf. In case of a damaged product, it allows you to return it easily.
Credit Card companies provide insurance when you purchase a product. If you buy a mobile phone, the Credit Card company is liable to ensure it and pay you in case of theft or damage of any kind. Credit Card companies have helplines where you can report any matters of loss or theft.
Credit Cards are way too convenient to carry around especially while traveling. You do not have to take bundles of cash with you. You just need to swipe your card and you can make payments anywhere in the world.
Does using a Credit Card affect your Credit Score?
Keeping the advantages aside, the most inconvenient result of using a credit card improperly is its effect on the credit score. How does this work? Keep reading to know.
1. High rate of interest
Credit cards carry the highest rate of interest. A housing loan or education loan can have an 8% to 10% of interest rate whereas uses of Credit Card is a loan where the interest rate can go as high as 40% annually. If the repayment is delayed, you may have to pay a very high-interest rate. It promotes spending over saving.
2. Credit score
If you have taken a housing loan or any other loan, and have delayed the payment, you become a defaulter and your credit score goes down. Banks lose trust in you and may refuse to give you a loan the next time you ask for it or you may have to pay more interest rate next month or on your next loan. For more details, see how you can improve your credit score or take precautions to ensure your loan is not rejected, in India.
3. Fines and fees
Credit Card companies have complex fines and fees. They charge fees on account of late payments. There is also a maintenance fee or limit transfer fee from one card to another. The transaction statements can show the fees charged to you.
4. Terms and conditions
There are many terms and conditions when you buy a Credit Card and the customer must read them carefully. But these terms and conditions are written in very small font and are almost unreadable. The customers get trapped due to this and are often misled. For example, if your repayments are delayed, your interest rate may increase as there is no fixed interest rate. All this is conditional and the company cannot be sued if the interest rate is increased.
5. Minimum payment
The monthly credit card bill is a small amount and you do not mind paying it as it is affordable. If you have taken the credit of Rs 10,000, you have to pay back Rs 500 every month for 20 months. The amount seems affordable because interest is not included in it. But try to pay more than the minimum payment to avoid a 30% to 40% interest rate. It is the highest interest rate. If you take a housing loan, there is a capital gain in the future. On an education loan, you get a degree, get a job and earn money and repay the loan amount. Credit Card is used on small things which depreciate and hence there is no gain on them.
Keeping in mind the advantages and disadvantages of uses of CREDIT CARD think carefully before applying for one. It encourages customers to spend more than their capacity thus trapping customers in this vicious cycle. It does not teach you better financial discipline. So, work on self-control and use it wisely to avoid having any large debts.
For further information, you can check out the video below:
While you’re here, another prevalent ongoing scam is the Bank KYC scam. Read on to beware of this.
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