Credit card

A credit card lets you spend up to a limit on the bank’s money and pay it back by a due date. Clear the full bill in time and it is interest-free; leave any part unpaid and it carries high interest, around 3.5% a month on many Indian cards.

How the monthly cycle works

A credit card runs on a billing cycle, usually about a month. You spend during the cycle, then the bank sends a statement listing the total amount due and a due date a few weeks later. Pay the full total by that date and the bank charges no interest: you have effectively used its money free for up to about 45 days. That interest-free stretch is the grace period.

The trap in paying less

The statement also shows a minimum due, often about 5% of the bill. Paying only that keeps the card regular and avoids a late fee, but it does not clear the bill. The unpaid rest starts carrying interest at around 3.5% a month, roughly 42% a year, and you lose the grace period on new purchases too. This is how a small balance snowballs. See what it costs in the cost of a slow card payoff.

The limit and your score

The bank sets a credit limit from your income and record. How much of it you use, your credit utilisation, feeds your credit score: keeping usage low helps, maxing the card out hurts. Paying on time is the single biggest factor in a healthy score.

Used well, it is useful

Treated like a debit card, spending only what you can repay in full, a credit card is convenient, safer for online payments, and builds your credit history. The only real danger is the interest, and that is entirely avoidable by paying the full bill every month.