What Is Credit Card & How Does Credit Cards Work?

Managing money has changed dramatically since the introduction of digital technologies and contemporary banking systems. The days of depending entirely on cash and cheques to make payments are over with the age of digital payments. The Credit Card is at the forefront of this stand, a compact card that has become integral to modern-day commerce.

Credit Cards have changed the fundamental concept of banking, presenting unmatched convenience and boundless possibilities. They bridge your immediate finances and aspirations, empowering you to make purchases and handle unforeseen expenses easily.

Now, you may wonder what a Credit Card is. How does it work? What are its requirements? This article will answer all the questions about the Credit Card. So, let's get started.

What is a credit card?

A Credit Card is a financial card that you, as the cardholder, can use to make purchases or access credit. When you have a Credit Card, you can borrow money from a bank or financial institution up to a certain limit, known as your credit limit. You can then use this card to buy goods and services online and in physical stores. Several companies run offers and provide no joining fee credit cards for first-time users.

How does a credit card work?

When you have a Credit Card, the issuing bank or financial institution essentially extends you a line of credit up to a specified limit. When you use your Credit Card to purchase, you borrow money from the issuer. You receive a statement detailing your transactions and outstanding balance at the end of each billing cycle.

You are required to make at least the minimum payment by a specified due date. If you don't pay the full balance, the remaining amount carries over to the next month, subject to interest charges. You can avoid interest fees if you consistently pay your complete and timely balance. However, if you carry a balance, interest charges can add up quickly.

Must Read: Various Types Of Credit Cards Available

What are the features of a credit card?

A Credit Card offers a range of features to help you manage your spending and payments. Some of the features are:

1. Credit limit

The credit limit functions similarly to a spending limit established by the card issuer. It is the most you can spend with a Credit Card. If you exceed the spending limitations, you may incur fines.

2. Rewards programs

Numerous Credit Cards offer rewards programs, enabling you to accumulate points, cash back, or airline miles with each transaction. These accrued points can be exchanged for various benefits, such as gift cards, travel discounts, and bill credits.

3. Records of transactions

Credit Cards maintain detailed records of your transactions, encompassing every purchase, payment, and financial activity. These records provide a comprehensive overview of your spending habits.

4. Fees & charges

Credit Cards may have associated costs, such as an annual charge for using the card, late payment fees if you do not pay on time, and occasionally even international transaction fees if you use the card overseas. It is also important to understand that no joining fee Credit Cards are available. Verify this Credit Card information on their website or call customer service to learn about the charges.

What are the eligibility criteria for getting a credit card?

Understanding the eligibility criteria for getting a credit card is essential. The eligibility is as follows:

1. Age:

People between 18 and 70 years of age can apply for Credit Cards.

2. Nationality:

Indian residents and Non-Resident Indians (NRIs) are eligible for various Credit Cards.

3. Income:

Most Credit Cards need a minimum income of one lakh rupees. This criterion does not apply to student Credit Cards or government-backed cards.

4. Credit Score:

A credit score of 600 or more is generally needed to be eligible for Credit Cards.

What are the documents required to get a credit card?

When applying for a Credit Card, you must have the following documents:

1. Identity Proof

You can use your PAN (Permanent Account Number) or Aadhaar card as valid identity proof.

2. Address Proof

Valid address proof options include documents like your driver's license, utility bills (electricity, water, etc.), and voter ID.

3. Pay Slips

For salaried individuals, presenting the latest salary slips from your employer is necessary to verify your income.

4. Bank Statement

If you are self-employed, providing your last 6 months' bank statements helps the issuing bank assess your financial standing.

What are the advantages of credit cards?

Credit cards provide numerous benefits that enhance your financial flexibility. These advantages include:

1. Easy Access to Credit

A Credit Card gives you quick access to a line of credit you may use to make purchases. This may be useful for scheduled and unplanned needs, especially if you lack cash.

2. EMI Facility

Many Credit Cards allow you to pay off larger Equated Monthly Installments (EMIs) purchases. This tool allows you to stretch the expense of your purchase across several months, making it more reasonable and relieving the strain on your monthly budget.

3. Building credit score

Responsible Credit Card use may aid in developing a favourable credit history and improve your credit score. Making on-time payments and keeping your credit usage low indicate your trustworthiness to lenders, which can help you when applying for loans or mortgages.

4. Record of expenses

Credit Card statements provide details about Credit Card usage, making tracking your expenses and managing your budget easy. This can be especially helpful for financial planning, as you can analyse your spending patterns and identify areas where you might need to cut back.

Must Read: Best Credit Card For Movie Tickets In India

What are the disadvantages of credit cards?

While Credit Cards offer numerous benefits, they also come with several disadvantages. Some are:

1. Easy to Overuse

Credit Cards can lead to overspending if not used carefully. The ease of making purchases without immediate cash transactions tempts you to spend beyond your means, accumulating debt that can be challenging to manage.

2. High-Interest Rate

Credit Cards can have high interest rates, especially if you carry a debt from month to month. Failure to pay off the whole sum might result in large interest charges, making repayment more difficult and potentially leading to a debt accumulation cycle.

3. Credit Card Fraud

Transactions involving Credit Cards are vulnerable to fraud and unauthorised usage. If your Credit Card information is stolen or compromised, it can result in financial losses and the aggravation of contesting fraudulent transactions, damaging your credit score and financial security.


Credit cards can be useful for building credit, managing expenses, and earning rewards when used correctly. However, it's crucial to be disciplined to avoid getting into too much debt. To benefit from credit cards and stay safe, it's important to understand how they work.