Following the financial turmoil from the pandemic, customer interest for credit cards is on the rise, as it gives access to quick money that is not available in your bank account. Even if you have some investments which can be tapped to meet your emergency needs, it takes some time to break them. Hence, people tend to prefer credit cards where funds are available on tap. While credit cards do come in handy during emergencies, customers should also remember that with salespersons sitting on heightened targets to acquire customers, mis-selling of credit cards may be quite rampant. You must fully be aware of the terms and conditions, do’s and don’ts, lest your liabilities pile up.
In the Annual Report of Ombudsman Schemes 2019-20 (latest available), the RBI highlighted that about 28,713 complaints received (9 per cent of total complaints) were with respect to credit card mis-selling.
Taking cues from these complaints, we highlight certain things you need to be aware of before you take up a credit card.
Unsolicited issue
Ever experienced pre-approved credit cards landing in your mailbox ? Well, the money may be handy, but the problems may not be far behind. Banks are clearly prohibited from issuing such unsolicited cards. Even for their existing clientele, banks can only issue inactive credit cards, without the prior approval of the customer.
The activation of the card can solely be done by the customer, and until such time no charges whatsoever can be levied. If you receive an unsolicited card, you should immediately sort this out with the bank to avoid fraudulent use of such card or any ensuing levy of charges.
Hence, it pays to be alert and keep a tab on your bank communications and statements. Even in your savings account, do a thorough check of every charge, however petty. These charges can alert you on any such wrongful or unintended activation of credit cards in your name.
Also, most banks have the credit card tabs included in their mobile application and net banking website. Visiting the credit card section once in a while will help you keep a tab on all active credit cards, the amount billed and due on the same, etc. If any such unauthorised cards are activated, immediately report the same with the bank.
Lack of transparency in charges
Instances were also reported of wrongful charges being levied on authorised credit cards. While the bank personnel could have presented the card as a completely free one, sudden levy of annual maintenance charge (AMC) or other charges would have taken you by surprise.
Turns out the waiver on AMC was only applicable for the first year and has been wrongly communicated to the customer. Or only some charges have been waived while a set of other charges continue to be levied.
Quite often these charges also don’t form part of the many brochures and statement of charges that are mailed along with your card, which leaves the customer in a tricky spot.
However, it is not that sellers alone are at fault. Customer ignorance is also to be blamed in many instances as per the Annual Report of Ombudsman Schemes.
Credit card cash withdrawal related complaints show such examples of customer unawareness. Banks often highlight the limit of cash withdrawals on your credit card, along with the credit limit. But what goes unnoticed mostly is that, while you have a 30-45 day interest free window to pay your normal dues on credit card, no such leeway exists for cash withdrawn from credit cards. Not only is an interest levied at exorbitant rates (23.8-42 per cent, per annum currently) from the date of withdrawal, but most banks also charge you a cash advance fee, that ranges from 2.5 to 3.5 per cent per month, on the amount withdrawn. This cash advance fee is also added to your dues and attracts interest from the date of withdrawal.
Wrong reporting of CIBIL score
Another category of customer complaints relate to wrongful reporting to credit bureaus such as CIBIL, which affect the credit score. But again, this is more due to lack of awareness on the customer’s side than mis-selling on the part of the bank.
Are you aware that multiple applications for credit card made in a short span works against your credit score? Any liability on stolen/ lost cards that is not reported immediately, may also hamper your credit score.
Besides, many of those who only pay their minimum dues are also often unaware that the remaining amount due is treated on par with a loan – along with interest being levied, the dues form part of your credit report too.
Every late payment or non- payment of credit card dues also affects your credit score negatively. Whether the delay was on account of any disputed charge or not often isn’t mentioned in the report. Six months of missed payments and the bank can even ‘charge off’ your credit card. This ‘charge off’ status will remain on your credit report for as long as seven years.