Revolving credit is a type of credit that includes credit cards and other lines of credit. With revolving credit, you can borrow up to a predetermined limit, repay it, and borrow again as needed. 

Revolving credit is different from instalment credit. With instalment credit, you borrow a set amount and pay it back in fixed instalments. Personal loans or car loans are examples of instalment credit.

If you have a credit card, you are using revolving credit. Let’s learn what revolving credit is in detail and understand its various aspects. 

Understanding Revolving Credit

Revolving credit operates through a continuous cycle of borrowing, repaying, and re-borrowing.

Let’s understand its functioning with the following illustration: 

Imagine you have a credit card with a limit of ₹5 lakhs. You make a transaction amounting to ₹80,000. Now, you still have ₹420,000 available for further credit. When the bill arrives, you pay back the ₹80,000 you had used. 

If you repay the amount you have used, the available credit limit will become ₹5 lakhs again. However, there is another option as well. You can pay the minimum amount due on your credit card bill and carry forward the balance to the next billing cycle. With the second option, you are revolving the balance. Thus, you have continued access to your credit limit, but the unpaid balance accrues interest.

Key Benefits of Revolving Credit

If you use revolving credit, you can benefit from the following:

1. Flexibility

With revolving credit, you only borrow what you need. You also pay interest only on the amount used. Payments for revolving credit are also flexible. For instance, you can pay the minimum dues for a bill and allow the rest to get carried over to the next billing cycle. This can allow you to manage your repayments according to your financial situation.

2. Repeated Use of Credit

Unlike instalment credit, you can use revolving credit repeatedly up to the pre-defined limit. When you repay the borrowed amount, your credit limit is resumed to full again. It ensures ongoing access to funds.

3. Rewards and Privileges

Many credit cards offer rewards programs, exclusive offers, and other incentives. It can add value to your expenses and allow you to enjoy lifestyle benefits.

For instance, with IndusInd Bank Credit Cards, you can enjoy benefits such as:

• Reward points on everyday expenses.
• Travel privileges and discounts, such as insurance coverage and airport lounge access.
• Fuel surcharge waiver (up to a pre-defined limit).
• Complimentary movie tickets and much more.

4. Emergency Cash Reserve

Revolving credit can act as a financial safety net that provides funds for unexpected expenses or emergencies. It can allow you to handle such situations with peace of mind.

5. Improvement of Credit Score

Responsible use of revolving credit, such as timely payments and maintaining a low credit utilisation ratio, can positively impact your credit score.

Also Read: 5 Credit Card Features that Can Exclusively Benefit a Traveller Like You

Drawbacks of Revolving Credit

Despite its benefits, a revolving credit facility can have drawbacks if one does not manage it wisely, such as:

1. High Interest Rates

If you revolve your credit balance from one month to another, the interest on the unpaid amount keeps accumulating. It can lead to significant debt. Continuous use of the facility can also lead to a cycle of increasing debt.

2. Negative Impact on Credit Score

If you often miss payments or use your credit limit quickly, it hurts your credit score.

Conclusion

Once you understand the meaning of revolving credit, its benefits, and drawbacks, you will be better equipped to make informed financial decisions. While revolving credit can be beneficial in some aspects, it is crucial to use it with caution.

If you want to apply for a credit card, look no further than IndusInd Bank. With a 100% digital application process, exclusive rewards and privileges, and much more, IndusInd Bank ensures a seamless banking experience!

Apply Now for IndusInd Bank Credit Cards today!

Disclaimer:

The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.

If you are struggling to clear your credit card dues, you can consider the ‘balance transfer facility’. It is the process by which you can shift the pending balance from one credit card to another.

Balance transfers on credit cardscan help manage your credit card debt. However, knowing the effect they can have on your credit score is important. Let’s learn more about it.  

Understanding Balance Transfers on Credit Cards

First, let’s understand what a credit card balance transfer is in detail.

• Balance transfer is a feature offered by credit card issuers where a cardholder can move their credit card debt to a new credit card account. 

• Balance transfers are beneficial when the new credit account has a lower interest rate than the existing one. Usually, this may be a promotional interest rate valid for a particular time, such as 6 months or a year. 

• By shifting existing debts, the cardholder can pay off their debts faster. It also helps to reduce the risk of missed payments. In addition, they may also incur a lower interest rate with the new account. 

Not all banks offer balance transfers on credit cards. It is advisable to contact your bank and get clarity about this feature. 

If you are planning for a balance transfer and are wondering, “Does a balance transfer affect my creditscore?” the answer is ‘Yes’.

The Negative Effects of Balance Transfer on Credit Scores

When you opt for a balance transfer, the credit score gets affected due to the following reasons:

1. You May Face an Inquiry on Your Credit Report

When you apply for a new credit card to carry out the balance transfer, banks initiate an inquiry on your credit report. With each inquiry, the credit score may decrease. If your credit score is not very good, these enquiries can further add to it.

2. Your Credit Utilisation Ratio May Increase

The credit utilisation ratio is the debt you are currently using divided by the total credit available to you. It is a crucial part of your credit score, which you must keep below 30%. After the balance transfer, if you use the freed credit limit from the new credit card, it may increase your credit utilisation ratio. It will negatively affect your credit score. 

3. Your Credit History May Reduce

Your credit history gets shortened if you close the existing credit card after transferring the balance to a new one. The average age of your credit account will suffer a hit, impacting your credit score. 

Now you know that balance transfers do hurt your credit score. However, they can also have positive effects on credit scores.

Also Read: People with a Low CIBIL Score Can Still Get a Credit Card – Here’s How

How to Improve Credit Scores with Balance Transfers

By utilising the balance transfer smartly, you can improve your credit scores.

1. Pay the Bills on Time

When you move your balances to a single card, it can be easier to track its payment. With a single due date in mind, you can avoid late payments. It can help maintain and improve your credit score.

2. Avoid Using Credit on the Other Cards

Opting for a new credit card can increase your credit limit. If you do not utilise this credit limit, it reduces your credit utilisation ratio. Thus, it leads to improvements in your credit score.

Conclusion

Understanding balance transfers on credit cards can help in effective debt management. But it’s essential to use it wisely. Also, choosing the right banking partner for your credit card is crucial.

IndusInd Bank offers a seamless digital banking experience and exclusive rewards, offers, and privileges. To make the most of these benefits, apply now for a new credit card with IndusInd Bank today.

Disclaimer:

The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.

When you sign up for a credit card, you agree to pay back the money you owe. The card-issuing bank funds your credit card spending. Hence, you are responsible for paying them back what you owe on time. 

If you fail to pay the minimum amount due on your credit card by the due date, you may face credit card delinquency. If you do not pay your credit card bills (for several months) even after a delinquent status on your card, you may be termed a credit card defaulter. 

Hence, being aware of credit card delinquency and how to avoid such a situation is crucial. Read on to learn more. 

Understanding Credit Card Delinquency in Detail

The following illustration provides a brief overview of how a credit card account can become delinquent:

Let’s assume you have a credit card with a payment due date on the 10th of every month. 

Now, if for some reason you are unable to make the payment by the due date, the following occurs with each set of days after the missed payment:

1. In the first 30 days, a missed payment can lead to your credit card account being declared delinquent. Your bank will send you a notice about this status. Also, a delinquent credit card account means that its holder must incur late fees. Your credit card-issuing bank will also inform the relevant credit bureau. This will have a negative impact on your credit score.

If there is no payment even after two months, your credit card account will be marked 60 days delinquent. The late fees and the interest on the pending credit will also increase.

• In case of non-payment even after two months and beyond, the bank might close your account or approach a debt collection agency. If they choose the latter, you will have to face numerous calls and visits from the debt collection agency.

If the cardholder does not pay the dues even after six months, the bank may declare them a defaulter. It can lead to severe repercussions.

Now that you know what delinquent debt is and its consequences, let’s look at how to avoid it.

Also Read: What Happens When You Default on Credit Cards?

How to Avoid Credit Card Delinquency?

To ensure you do not have to face a delinquent credit card account, keep the following points in mind:

1. Automate Your Credit Card Bill Payments

Setting up autopay for your credit card bills can ensure timely payments. Even if you forget the due date, the autopay system will ensure that the payment happens on time.

2. Use Your Credit Card Carefully

The chances of credit card delinquency are higher if the bill amount exceeds your repayment capacity. Hence, use your credit card with care. Create a budget, control your spending, and prudently use your credit card. Also, review your credit card statement regularly to verify the total dues.

3. Reach Out to the Bank

If you know you will find it difficult to clear the upcoming credit card bill, connect with your bank. Inform them about the reason for late payment. Enquire if there are any adjustments or alternative payment plans to avoid delinquency.

Conclusion

By understanding what delinquent debt is and ways to avoid it, you can maintain a positive credit score and have a smoother financial journey.

Also, choose the right banking partner for a smooth and seamless banking experience. With IndusInd Bank, you can enjoy a 100% digital credit card application process, excellent customer service, and a host of rewards, offers and privileges to make your lifestyle easier.

Apply Now for IndusInd Bank Credit Cards today!

Disclaimer

The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.