Are you defaulting on your credit card payments? What are the implications?
Have you been rejected for a pre-approved credit card?
What is balance transfer?
Get Ahead Money expert Harsh Roongta answered credit card related queries in a chat with Get Ahead readers on January 15.
For those of you who missed the chat, here is the transcript.
Part I: What you MUST know about credit cards
Manoj asked, Does it make sense to opt for a six-month EMI for the outstanding on your card? Or it's best to pay the whole amount in 2-3 months.
Harsh Roongta answers, Good question. Normally the EMI options at around 18% are far cheaper than regular credit available on the credit card at around 34%. But most EMI options do not allow pre-payment and could also have upfront fees that may make them more expensive. If you require flexibility, the regular credit card option may be suitable (though more expensive). Else you can opt for the EMI option.
manas_nath asked, is there any bank which give added benefits on home loans if u are an existing credit card customer with a good repayment history
Harsh Roongta answers, Great question. CREDIT CARDS ARE AN EXCELLENT OPTION TO ESTABLISH YOUR CREDIT WORTHINESS. Normally, most banks will sanction your loan much faster (and maybe at a slightly reduced rate) if you have a good repayment track record on your credit card.
AB asked, What exactly does pre approved card means? I had received calls from ICICI Bank and Citi telling me that my name has been chosen for such a card, and when I applied they sent me a regret letter!!
Harsh Roongta answers, I agree it is a disconcerting feature of the way that cards are marketed today.
This happens primarily due to the following reasons:
1) Most banks cull out a pre-approved list of consumers based on some internal database (for example, your savings account history) or external database (for example, your membership of a frequent flyer programme).
2) In those programmes, while the banks do not require the consumer to provide income documents, they nevertheless still do physical checks at the residence and office of the consumer as well as check it against credit records of a external database -- such as the CIBIL or Satyam database of defaulters
3) These checks cost money to the bank and hence they are done only if you apply in response to the 'pre-approved' offer.
4) Sometimes, the verification process shows up negative -- mainly because nobody may be at home when they come for verification -- or the database may show (sometimes mistakenly) some default in the past in your name. This is the most likely reason for declining an application made in response to a 'pre-approved' credit card application.
erd asked, Hi, how profitable is the balance transfer option often put forth by the credit card companies?
Harsh Roongta answers, Balance transfer means that you pay off the balance outstanding on one credit card by getting a cheque made out by another credit card. Quite a few banks provide low (6-12%) interest and sometimes even nil interest rates to encourage you to use their credit cards to pay off the balance on a competitor's credit card.
The point to remember is that the concessional (or zero) interest rate is available only for a short duration -- 3-6 months -- after which the normal interest rates apply. So, while balance transfer can be an excellent mean to iron out short term cash flow shortage, it is clearly not a long term alternative.
fredrick asked, Can I get a credit card without owning PAN?
Harsh Roongta answers, Not any longer.
vishnu asked, Dear Sir, I has a SCB card in 2002 which was promised to me as Life Time Free card, but subsequently they have charged me for AMC and the dispute continued till 2004. The customer care has sent a mail confirmation regarding the closure of the card and reversal of the charges. However they have listed my details as written off case and the same has been entered in CIBIL data. So when i am approaching other institutes for card/personal loan they are rejecting basis the bad track of SCB, what should i do to remove my name from the CIBIL.
Harsh Roongta answers, What has happened to you is pretty unfortunate. I suggest that you file an official complaint with the bank on its website. If they do not correct their report within 2-3 weeks, you should file a complaint with the banking ombudsman.
You can also explore the possibility of filing a case in the consumer courts. The world over, this kind of thing is protected by legislation -- Fair Credit Reporting Act in the US is an example -- but these regulations await notification from RBI as far as India is concerned. Find out how to contact the banking ombudsman at www.rbi.org.in.
Shan asked, I hold a Credit Card and I understand that as per RBI guidelines I should get at least 10 days to see, verify and make the payment, however I just get the bills 2-3 days before due date. what action shall I take on this.
Harsh Roongta answers, I don't think there any RBI guidelines of the kind referred by you. This will be governed by the agreement you have with the concerned bank. The problem is probably occurring because of delay in receipt of the physical credit card statement. Most banks will send you an email bill if you register for the service. This may give you the review time that you seek.
Guru asked, I have purchase thru credit card around rs 10000 but i am not able to pay in time.so now i am getting the statements around 23000 i am wiling to pay the payements if there is any option to pay the actulas is the bank will accept or not i am waiting for your reply
Harsh Roongta answers, Clearly, the bank is well within its right to charge you interest because you have not paid up the full amount on the due date. I would strongly advise you to pay all legitimate dues of the bank. Otherwise, your default will be reported to the credit bureau which will severely restrict your ability to raise any loans (personal loan, education loan, home loan) in the future.
apoorv_shah asked, How safe online transaction as swap is not at all requierd then suppose my card is stolen and some one spends all this money from online shopping then who is responsbile?
Harsh Roongta answers, Your liability on the card ceases once you have officially apprised the bank of the loss of your credit card and obtained an official acknowledgement for such a report. Most banks have 24 hour call centre at which you can report this loss and they give you a unique registration number for acknowledging the receipt of such report.
SunilChoksi asked, Sir, Citibank take 4 to 5days time after depositing chaques in drop box and charge late payment. Can we demand acknowlegment from Banks at the time of depositing chaque.
Harsh Roongta answers, RBI has instructed banks to provide acknowledgements when the cheques are deposited across the counter at the bank branch.
You should complaint on the website of the concerned bank and if they do not give you a satisfactory response you should file a complaint with the banking ombudsman. Find out how to contact the banking ombudsman at www.rbi.org.in.
Bhavin asked, Does a default in credit card repayment mean decrese in credtiworthiness as some DSA's say when calling up people who have defaulted in their payments, and is there a website indicating the credit ratings of that particular person?
Harsh Roongta answers, Yes it does. CIBIL is a common credit bureau which receives all repayment details (both ontime as well as defaults) from almost all leading banks. Most Mastercard and Visa have a defaulters database to which all participating banks contribute data of defaulting consumers. Any default data here is available to all lenders. Hence, any default clearly makes access to any form of credit in the future most difficult and definitely very expensive -- if it is available at all.
ashwin asked, I am having 3 credit cards (SBI,ICICI,HDFC). I have clean payment track record( 2-3 Instances of recolving credit,But No Cheque bounce or Overlimit. But Now I am not getting any card. Is there any limit of card issuance to One Person.
Harsh Roongta answers, No, there is no formal limit. But since the details of all these credit cards are available with CIBIL, the new credit card issuers may probably be concluding you are already heavily leveraged as compared to your income level . Hence, they may be declining your application for another credit card.
badoni asked, Money small shopkeepers are charging around 1.5-2.5% of the purchse cost of the productdirect from the customers on ground that the credit card issuing bank charging that amount from them..whether this transaction is bonafide..if not what is the remedy..?
Harsh Roongta answers, Normally, credit card payments may not be allowed for discounted merchandise (or may be allowed with the surcharge of 1.50% mentioned by you). However, this is rarely done in any large merchant establishment.
Harsh Roongta says, Thanks for the overwhelming response. My typing skills were tested to the limit. I apologise for not being able to answer all questions. Do join me on my next chat. Thanks and good evening.
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