India is one of the fastest growing economies in the world, with a large pool of active credit seekers. The number of credit cards issued in India has been steadily increasing over the last few years. As of September 2021, this number was nearly 65 million credit cards. This increasing interest in fast and easy credit has encouraged credit card providers to introduce new and interesting services and offers.

There are many factors that contribute to the growth of the number of credit card holders in India. The rise of India’s middle class, the sudden economic activity after the pandemic, the change in spending patterns of the younger consumer base, are all top reasons. As per the Reserve Bank of India, the credit card spends in India saw a 57% increase on a year-on-year basis, and was INR 80,000 cr in September 2021.

In India, credit cards are plastic cards that come with an embedded microchip. The microchip stores information about the credit card account such as credit card number, expiry date and card security code.

Credit cards simplify payment for both buyers and sellers. They allow buyers to avoid carrying large amounts of cash while making purchases. Merchants benefit as they have secure access to funds from customers’ bank accounts, in a documented form, although there is a processing fee involved.

They are widely used everywhere in India, from petrol bunks to restaurants, for hotel bookings, and online purchases. They can be used in person by swiping into a credit card machine or online, entering credit card details into a web form and so on.

There are few places today where it is not possible to use credit cards. For example, some of the smaller shops or restaurants do not accept credit card payments even today, as their smaller scale of business may not make buying and maintaining a card swiping machine viable.

ICICI Platinum Chip Credit Card

Get 2 PAYBACK Points on every INR 100 spent for retail purchases

1% fuel surcharge waiver on transactions of maximum INR 4,000 at HPCL pumps

On ICICI Credit Card Page

IndusInd Bank Legend Credit Card

On IndusInd Credit Card Application

Bajaj Finserv Insta EMI Card

One can repay the EMIs in between three to 24 months

On Bajaj Finserv Insta EMI Card Page

Although credit cards are popular and simple to use, they do come with some risks. If not managed cautiously, it is very easy for the user to get caught in a complex cycle of debt. One of the first things users need to do is understand their credit card payment cycle and how it works.

The credit card payment cycle involves processing a credit card transaction from start to end. To understand the process, users first need to understand a few terms associated with the cycle.

Now let’s analyze a typical credit card transaction.

The entire chain of events from taking money from a customer’s account and paying the merchants for goods or services is called the credit card billing cycle, typically a month. Credit card companies send a statement with the details of transactions done during the billing period to the customer, who then has to make the payment of the amount specified.

Understanding the billing cycle is essential for financial planning. In general, the billing cycle for a credit card will last anywhere from 25 to 31 days, depending on the card issuer. Your credit card due date will remain the same every month. It will usually be 21 days from the end of a billing cycle.

A typical credit card billing cycle has the following steps:

For example, let us say the credit card billing cycle is from 19th of a month to 18th of the next month, with statement date being 18th and due date being 7th of the next month. Also, let us assume that today is the 26th, and that the customer has made total spends of INR 6000 before 18th, and Rs.3000 between 19th and 26th. In this case, while only Rs.6000 is payable by the 7th, the total outstanding is Rs.6000+Rs.3000 = Rs.9000, i.e. total amount payable regardless of when it is due.

Why is this important? As a credit card user, you need to understand specific aspects of your card cycle for better financial planning. The questions you need to ask to understand your fee structure include:

Credit card companies charge fees to merchants for accepting credit cards for payment, and they charge fees to customers if they fail to pay their bills on time. This is where the trouble starts for most credit card customers.

You sign up for a credit card and receive a credit limit. You can use this credit limit to pay for goods and services.

If you do not pay off your due amount in full, your new balance will include the amount you have borrowed from the card issuer, plus interest, which is calculated at a high rate (as much as 48% per annum) over many months.

As a credit card user, how can you effectively ensure you don’t burden yourself with payments and yet manage your finances?

Best Credit Cards In India 2022

When it comes to credit cards, these are best suited based on one's needs. We’ve put together a list of best credit cards to help our readers compare and select a card that suits them the most.

Credit cards can be useful and convenient financial tools if you learn to use them responsibly. Even if you are in financial debt owing to careless use of credit cards, you can take professional advice to gradually become debt-free.

With responsible spending, credit cards can prove to be a valuable financial tool. They can fetch you reward points, discounts on your desired purchases, and in general, defer your payments by over a month, thereby saving you interest. When you are in temporary financial stress, the ease of conducting transactions through credit cards can prove handy.

One of the foremost things you can do is to avoid common mistakes and stay away from unnecessary spending. You must also take the time to understand their card’s fee structure, interest rates, penalties, and rewards. As an additional reinforcement, before finalizing a credit card, you can also approach online marketplaces and advisor forums to compare the different credit cards available to you and determine which is the best fit for your lifestyle.

Jaya Vaidhyanathan is the CEO of BCT Digital, a global technology company specializing in innovation for financial services. She holds an MBA in Finance and Strategy from Cornell University and is a CFA charterholder.

Armaan is the India Lead Editor for Forbes Advisor. He has more than a decade’s experience working with media and publishing companies to help them build expert-led content and establish editorial teams. At Forbes Advisor, he is determined to help readers declutter complex financial jargons and do his bit for India's financial literacy.