Credit Card

Uses of Credit Card

1) Easy access to credit:

A credit card is convenient to use, allowing you to access funds immediately and repay them later. It can be linked to your bank account and digital wallet for easy access to money. You can simply scan and pay or swipe your card at a merchant’s terminal.

2) Interest free credit:

Users can access funds through a credit card without incurring interest charges. A credit card typically has a 45-day billing cycle, including a grace period, allowing you to use the money interest-free during this time.

3) EMI Facility:

If you want to pay for a new phone, house, or anything else, you don’t need to pay a lump sum or take out a loan. Instead, you can use a credit card and pay in EMIs (Equated Monthly Installments).

4) Reward points:

By using your credit card for expenses, you can earn reward points that can be redeemed for shopping, movies, and other benefits.

5) Improves your credit score:

If you know how to use a credit card wisely, you can improve your credit score and qualify for loans with minimal interest rates. Using a credit card and repaying on time boosts your credit score.

6) Keep track of your expenses:

Since credit facilities can lead to increased spending, it is important to track your expenses. With a credit card, you receive a monthly statement, allowing you to decide on a repayment date and effectively manage your credit.

What documents are required for credit card?

A credit card lets you pay for goods and services in stores, restaurants, online, and more. It comes with a specific spending limit, allowing you to make purchases up to that amount.

Steps for Credit Card

1) Submit your Salary certificate or any other income source in the bank
2) Banks check eligibility criteria
3) They provide a form of credit card
4) Fill out the Form and submit it to the banks
5) Within 1 week, the bank will provide a credit card by setting the limit
6) You can swipe on any POS machine to get access for payment of goods and services

Eligibility For Credit Card

1) Residential Status:

The users need to be residents of Nepal.

2) Age:

Any user’s age limit must be a minimum of 21 years and a maximum of 60 years old.

3) Income:

The salaried person or self-employed can take credit card facility. Their income should be a minimum of Rs. 20,000 and above. And, annual business income of Rs. 1, 50,000 and above.
Some card issuers may issue Credit Cards to individuals who are backed by fixed deposits.

4) Bank Account:

The credit card holders must issue the card from the bank where their account is made or can also issue cards from other banks by showing salary sheets.

5) Credit History:

The users may have taken many loans from different banks so CIB (Credit Information Bureau) checks the credit score of individuals before giving any limit on credit cards.

What are the required documents For Credit Card?

For Salaried Person

1) Copy of citizenship
2) Recent PP size photograph
3) Latest Annual Salary Certificate
4) Three months’ bank statement of salary account for salaried applicant
5) Application form
6) For existing loan customers, the details of the credit card shall be recorded in the credit file
7) No income certificate is required for those who would like to take a credit card against a lien on a Fixed Deposit, Current or Saving Account

For Self-Employed

• Income proof
• Application Form
• Statement of accounts(Company registration certificates, PAN, latest tax clearance certificate and latest audited/self-declared financial report)
• Proof of business

How Credit card limit is determined?

Credit card determines the credit limit through a process called underwriting, which includes financial factors like:

• Credit score
• Payment history
• Income Level
• Credit Utilization
• Monthly expenses

Credit Card Billing Cycle

A credit card billing cycle is the period during which transactions are recorded and a statement is generated. Typically, this cycle lasts between 28 and 31 days, varying based on your card type and issuing bank. Your payment due date is generally 15 to 20 days after the billing cycle ends. You can choose to pay your bill in full or just the minimum amount. If you only pay the minimum, the remaining balance will carry over to the next billing cycle with added interest.

Terms used in Credit Card Billing System

1) Statement date or billing date

The credit card statement date marks the end of a monthly period, summarizing all expenses made during that time. It includes details of the previous month’s payments, the total repayment due, and the deadline for paying the full amount to avoid any charges or fees. On the statement date, the bank sends you an email, allowing you to choose whether to pay the minimum amount or the full balance.

2) Due Date

The due date follows the statement date, typically falling 15 to 20 days later, also known as the grace period for paying off your bills. If you pay the full amount by the due date, you avoid interest charges. However, if you miss the due date, you will incur significant interest charges and your credit score may decline.

3) Minimum Amount Due:

The minimum due amount is a percentage of the total outstanding balance that you must pay to the bank by each bill date. This percentage varies by bank but typically ranges between 10% and 100% of the total balance. Interest is charged on the remaining unpaid amount.

Example of Credit Card Billing Cycle

Credit limit = Rs. 10,000
Use of Credit amount = Rs. 2,000
Use of Credit card Date = 27th May
Statement Date = 26th June
Due Date = 10th July

As seen in the example your credit limit is Rs.10,000 and the statement will be generated on 26th June so you have a clear Rs, 2,000 on the due date.

Credit Card in Nepal

Himalayan Bank was the first to introduce credit cards in Nepal. Today, nearly every commercial bank in the country offers credit card services, each with its own set of features and benefits. In Nepal, cardholders can withdraw up to 10% of their credit limit in cash. Most banks charge an interest rate of 2% per month, and the cards can be used in Nepal, India, and Bhutan.

Credit Card Providers Commercial Bank in Nepal

Total Number of Credit card Issued and Total Transaction Amount

As seen in the table the growth of credit cards has been gradually increasing from mid-February 2024 to mid-March 2024.

Source: NRB

Fees and Charges of Credit Card

Disadvantage of Using Credit Card

1. Hidden Fees :

   Credit cards come with a variety of fees and hidden charges, including joining fees, renewal fees, annual fees, late payment fees, and replacement fees, among others. These charges can accumulate quickly, adding to your financial burden. Missing or forgetting to pay any of these fees can result in penalties and repeated late payment charges, which can compound over time. This accumulation of fees and penalties can directly impact your credit score.

2.  Over Spending:

   Credit cards offer generous credit limits, often leading people to spend more without considering the need to repay the balance. Additionally, various credit cards offer reward points and discounts on different products, encouraging even higher spending. This can result in significant debt accumulation.

3. High-Interest rate:

   Credit cards charge interest if you don’t pay off your balance by the billing or due date. This interest is carried over to the next month, and you also incur late fees. The interest rate typically ranges from 2% to 3% per month, equating to 24% to 36% annually, which can quickly become a significant financial burden.

4. Credit Card Fraud:

   Credit cards, issued by banks, are regarded as safe financial tools, but they are still susceptible to fraud. With advanced technology, there is a risk of unauthorized access to your confidential information during transactions. Therefore, it is essential to take steps to secure your data.

How Credit Card Laundering Works

Online platforms offer the anonymity and global reach that traditional methods lack, making them attractive for laundering activities. Credit cards have evolved from mere tools for individual fraud into instruments for complex money laundering operations that exploit online systems.

1) Multiple small transactions:

The credit card holder might engage in smaller transactions instead of large ones to avoid triggering financial scrutiny. This way, the transactions can remain unnoticed and avoid raising any alarms.

2) The Exploitation of Stolen Credit Cards

The hacker often steals credit card information and engages in illicit activities. Criminals use various methods such as hacking, phishing, or skimming to obtain this information. It is then sold on dark web marketplaces, where criminals use it for payment fraud or other illegal activities.

3) Layering:

This involves using credit cards to conduct numerous complex transactions, making it difficult to trace the source of the funds. In the layering phase of money laundering, illicit money is intentionally passed through multiple layers of transactions to obscure its origin. This process complicates the paper trail, making it challenging to trace the money back to its source and to identify those involved.

4) Online gambling and gaming sites

The digital territory provides another avenue for credit card money laundering. Criminals can use credit cards to purchase online gambling credits or virtual gaming goods. These credits or virtual goods can later be cashed out or sold, effectively converting illicit funds into seemingly legitimate online earnings. This method exploits the anonymity and global reach of the internet.