August 22, 2025 · 11 mins read
Santosh Kumar
A credit card, as the name suggests, is a card issued by banks and financial companies that gives customers the privilege to perform transactions, on credit, to be paid back at a later date. Customers can buy a variety of things and even withdraw cash using credit cards. Creditors often issue credit cards with a pre-approved credit limit. This credit limit depends on the credit score, financial health of the customer, existing loan status, monthly or annual income, payment history, etc. Credit card providers approve credit cards only for customers who have acceptable credit scores.
Some experts even consider credit cards and credit card transactions much safer than debit cards. Credit cards notify us about fraudulent transactions and may even reimburse fraudulent charges, if any. While with debit cards, we can only purchase depending on our bank balance, credit cards allow us to shop seamlessly.
In India, it is easy to apply for a credit card from most leading banks and financial institutions. One can even apply online, and the card is delivered within no time. Once it is approved, the bank or financial institution. Some banks also provide virtual credit cards without the actual physical credit card. Credit cards are widely accepted in almost all parts of India, thus giving customers a hassle-free and smooth shopping experience.
Having a credit card is a boon in today's society, where prices of both essential and non-essential commodities have skyrocketed. With credit cards, customers can purchase anything they wish for, and repay it at a later date. Credit cards also offer flexible interest-free EMI options at attractive rates, with a tenure ranging from 3 months to over 48 months. Credit cards also offer a plethora of benefits to customers, like a welcome bonus, cashbacks, amazing discounts on movie tickets and flight tickets, fuel, food outlets, free airport lounge access, etc. Some credit cards are free with no joining fees or annual fees. Different credit cards are offered by banks to suit the many different needs of customers.
Credit cards often come in handy at times of unexpected hospital emergencies, unplanned travel expenses, or when a person goes through a financial crisis.
Also Read: Online Shopping with Credit Cards – Safety Tips
Each month, a credit card issuer sends credit card statements to all its customers, which show the total purchases made with the card in that particular month, total amount due, interest charges, minimum due amount and last date to pay the dues. Credit card payment can be done in both online and offline modes, Net Banking or UPI modes. Reminders can also be set up for timely credit card payments, so as not to miss timely payments.
Though credit cards have their own advantages, it is equally important for customers to maintain financial discipline while repaying credit cards. For a good credit score, customers must ensure they have utilised only 30% of their pre-approved limit. One must be extremely cautious while using credit cards. Credit card payments should be timely and prompt. Customers have time to repay their credit card debt within their next billing cycle or before the generation of the credit card statement. Some credit card providers also offer a grace period for the convenience of customers.
Credit card providers send continuous reminders on a frequent basis before the due date. If credit card repayments are not made on time, customers not only will have to pay high interest rates, but they also will be fined late fees. Interests compounded daily pile up to the already unpaid principal amount, making a huge debt for customers. Customers may also lose the various credit card benefits if they fail to make payments on time. Failure to make timely payments, along with excessive spending, in the worst scenario, often leads to unfavourable situations, including even strict legal actions.
Also Read: When to Convert Credit Card Payments into EMI?
While repaying credit card bills, two terms that customers can come across often are credit card settlement and full repayment. Customers may have questions about what is better.
Credit card settlement is essentially a negotiation between the creditor and the customer when the customer is unable to pay the outstanding total amount. Credit card settlement is the one and only option for customers who are not able to pay off their debts due to their financial struggles. Depending on the negotiation, creditors agree to forgo a portion of the total amount owed by the customer. Credit card settlement percentages vary from 20% to 100% depending on the total outstanding amount, the financial status of the customer, the customer's loan repaying capacity, etc.
On the other hand, making a credit card full payment is one of the most favourable options for customers who wish to settle their outstanding debts. By making a credit card full payment, customers do not have the burden to carry forward their balance to the next billing cycle, thereby increasing their chances of a decent credit score. Credit card full payment also increases customers' creditworthiness. A good credit score may even give the customer more discounts or cashbacks, enabling them to utilise their credit cards more often.
Credit card settlement should be the last resort for customers who are unable to pay off their mounting debts. Credit card settlement often renders the customer a credit card defaulter. This would, in turn, drastically lower the customer’s credit score and negatively impact the future loan prospects of the customer. Credit card settlement may be an immediate relief for the borrower, but it is better to think twice before going for short-term benefits than long-term risks. Some customers may even opt for credit card settlement to save some of their hard-earned money, without knowing its consequences in the long run.
Also Read: Should You Use a Credit Card for High-Value Purchases?
The credit card settlement process depends on the credit card providers. Customers should know how a credit card settlement functions before opting for a credit card settlement. Customers may look for other alternatives like selling off their investments, mutual funds, stocks, properties or even gold and repay the borrowed amount before choosing credit card settlement. The defaulter customer must produce a formal settlement letter with reasons for not being able to repay the borrowed amount. The credit card issuer, after going through the financial status of the customer, decides to accept or reject the settlement process. Credit card providers settle for a lump sum amount, waiving the remaining amount, and the remaining amount is marked as "settled" on the customer's credit report. Some banks, however, do not prefer credit card settlement and resort to harsh tactics to recover the borrowed amount.
However, customers can improve their credit scores even after credit card settlement by repaying their debts on time and avoiding any future loans.
Many customers prefer to pay the minimum amount on a monthly basis, which is roughly around 5% to 10% of the total outstanding amount, including any late fee penalties and interest charges. Paying the minimum amount helps to avoid late payment charges. This is in cases where customers are unable to make a full credit card payment.
Though paying the minimum amount is an attractive option compared to opting for credit card settlement, it comes with its own set of drawbacks. Paying the minimum amount leads to accumulation of interest charges and may increase the debt burden on the customer if practised regularly and for extended periods.
Though there are many options to repay the borrowed money, full credit card payment is so far the best and most favourable option. Credit card full payment not only increases the credit score but also helps in faster and easier loan approvals in future. By paying timely bills and using cards wisely, customers must ensure they do not end up in situations such as credit card settlement. Credit card settlement reduces creditworthiness, which negatively influences the credit score and future availability of loans.
Credit cards are saviours in cases of emergency need for funds, and they are helpful in purchasing a variety of products, both online and offline. Credit cards can also be used to pay EMIs, insurance, stocks, mutual funds, etc. Credit cards can even be used to withdraw cash, especially during a cash crisis. Credit cards, if used wisely, increase the credit scores of customers. Customers should know the optimum usage of the card, rather than recklessly spending it and increasing their financial burden. Credit card bills must be paid on time to avoid late payment charges and to avoid an increase in interest rates. Payments for credit cards can also be done through equated monthly instalments (EMIs).
Also Read: Best Spending Categories to Earn Maximum Rewards
Credit card settlement is a process to resolve the debt of a credit card user by paying a minimal amount, which is less than the total balance. Credit card settlement is done by mutually agreeing on an agreement between the credit card user and the credit card issuer. The credit card issuing companies choose the process of credit card settlement as the last option to recover their long outstanding debt by waiving off a portion of the amount. However, such practice compels the credit card user to settle the due lump sum within a stipulated time, which is usually less than 6 months.
Credit card full payment refers to paying the credit card outstanding amount within the due date of the billing cycle, in full, keeping no amount outstanding. The full payment made within the due date may only include the amount spent with the card without involving any additional charges.
There is no specific percentage to consider for settling credit card due payments. The credit card settlement percentage fully depends on the discretion of the credit card user and the ability of the user to negotiate a good deal. However, credit card issuing companies agree to settle the outstanding amount from anywhere between 20% to 100% of the total due amount.
Credit card settlement adversely affects the customer's credit score. There will be a significant drop in the credit score because the user has declined to repay the agreed-upon amount while using the credit card. It has a negative impact on a credit score. The settlement of credit card payment indicates that the user is incapable of repaying the amount, and hence, he could be a risky borrower in the coming days. Moreover, improving the credit score after settlement may take a long time.
Selecting the credit card settlement process for clearing the credit card due payment is as good as declaring oneself bankrupt. The option of settlement should be considered by the credit card user only when there is no other option left to pay back the full amount. Hence, choosing a credit card full payment is the best and so far the most viable method to improve the credit score and build up a healthier credit report. A good credit report will always help to get finances back on track more quickly. There is also a chance that the credit card issuer may reject the settlement request from the credit card user and take harsh tactics to recover the outstanding amount with the help of recovery agencies, even legal action in worst cases.
There is no EMI option for credit card settlement, as the settlement process only occurs after both the user and the issuer mutually agree to reduce the outstanding amount to a certain percentage, allowing for full repayment.
It is advisable to opt for full credit card payment and not credit card settlement. Credit card full payment positively influences the credit score, but credit card settlement negatively impacts the credit score, landing the customer in trouble for future loans.
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