The main characteristics or features of credit card are listed as follows:
1. Alternative to cash.
2. Credit limit.
3. Aids payment in domestic and foreign currency.
4. Record keeping of all transactions.
5. Regular charges.
6. Grace period or grace days.
7. Higher fees on cash withdrawals.
8. Additional charges for delay in payment.
9. Service tax.
10. Bonus points.
11. Gifts and other offers.
Now let’s discuss each feature of credit card one by one.
1. Alternative to cash
Credit card is a better alternative to cash. It removes the worry of carrying various currency denominations to pay at the trade counters. It is quite easy and way fast to use a credit card rather than waiting for completion of cash transactions.
As an alternative, credit card helps a cardholder to travel anywhere in the world without a need to carry an ample amount of cash. It also reduces the possible risk of money theft and gives its user a complete peace of mind.
2. Credit limit
The credit cardholder enjoys the facility of a credit limit set on his card. This limit of credit is determined by the credit card issuing entity (bank or NBFC) only after analyzing the credit worthiness of the cardholder.
The credit limit is of two types, viz.,
1. Normal credit limit, and
2. Revolving credit limit.
Normal credit limit is usual credit given by the bank or NBFC at the time of issuing a credit card.
Revolving credit limit varies with the financial exposure of the credit cardholder.
3. Aids payment in domestic and foreign currency
Credit card aids its cardholder to make payments in any currency of choice. In other words, it gives its holder a unique facility to make payments either in domestic (native) currency or if necessary, also in foreign (non-native) currency, that too as and when required.
Credit card reduces the cumbersome process of currency conversion. That is, it removes the financial complexities often encountered in converting a domestic currency into a foreign currency. It is because of this feature, a credit cardholder can possibly make payments to merchants present in any corner of the world.
4. Record keeping of all transactions
Credit card issuing entities like banks or NBFCs keeps a complete record of all transactions made by their credit cardholders. Such a record helps these entities to raise appropriate billing amounts payable by their cardholders, either on a monthly or some periodic basis.
5. Regular charges
Regular charges are basic routine charges charged by the credit card issuing entity on the usage of credit card by its cardholder. These charges are nominal in nature.
The regular charges are primarily classified into two types, viz.,
1. Annual charges, and
2. Additional charges.
Annual charges are collected on per annum or yearly basis.
Additional charges are collected for other supplementary services provided by the credit card issuing entity. Such services include, add-on-card (an additional credit card), issue of a new credit card, etc.
6. Grace period
The grace period is referred to those minimum numbers of additional days within which a credit cardholder has to pay his credit card bill without any incurring interest or financial charges.
7. Higher fees on cash withdrawals
Credit-card issuer makes charges on cash withdrawals made through credit card at the ATM outlets and other desks. Generally, cash withdrawal fees are quite higher than fees charged by the bank or NBFC for the other regular credit transactions. On cash withdrawn done through a credit card, interest is charged from the same day. That is, interest is charged since the day on which cash is withdrawn. Usually, no grace period is provided for cash transactions.
8. Additional charges for delay in payment
The credit card payment is supposed to be made within a due date as mentioned on the bill of a credit card. If payment is not paid on time, then a credit-card issuer charges some additional costs, which are resulted due to delay in payment. These charges are charged to compensate (recover) the interest cost, administration cost and any other related costs bared by the credit card issuing entity.
9. Service tax
Service tax is included in the total amount charged to the credit cardholder. This mandatory service tax imposed by the government also increases the final end cost bared by a credit cardholder. Many credit card providers (issuing entities) have policies of reversing the service tax charged on the purchase of gas, fuel and other similar goods.
10. Bonus points
The competition among the credit card providers is unbending (adamant). Offering various incentives is usually a trendy (fashionable) way to improve the sale of the products in the ordinary course of business. Following this trend, credit card providers also give bonus points on the financial value of the transactions compiled by their customers.
11. Gifts and other offers
At a later stage (i.e. after crossing pre-determined number of bonus points) accumulated bonus points are redeemed either by converting them into gifts, cash back offers, or any other similar compelling offers. To collect many bonus points, the credit cardholder has to carry out a considerable number of transactions through his credit card.