Pay up and profit

Over the last few months, many banks have tweaked their interest rates on credit cards following the rise in the rates in the markets. Earlier, nearly all banks had a standard interest rate of around 2.95 per cent per month on a credit card, applicable to all borrowers. But lately, banks have begun offering differential rates. Recently, ICICI Bank has increased the standard rate on credit cards to 3.15 per cent per month from 2.95 per cent earlier. Many other banks are expected to follow suit.

Over the last few months, banks have increased the risk weightage on credit card loans. The interest rates and cost of funds have also gone up for most banks. Says Sachin Khandelwal, Head (Cards), icici Bank: "The cost of funds has gone up so the revolving credit rates have increased to 3.15 per cent per month." On the whole, card borrowing has gotten more expensive.

But in a move that is beneficial to good borrowers with an excellent credit history, bankers are now charging lower interest rates on credit cards as well. If you are a good borrower, with a clean credit history, no defaults and you revolve your credit, you are eligible for a better deal.

The rate for good borrowers may go to as low as 1.25 per cent per month, which works out to 16.08 per cent on an annualised basis.

Revolving credit

• Your purchases on credit cards have become costly
  
•  The rate of interest is now 3.15 per cent per month (45.09 per cent annualised) 
  
•  The rate can go to as low as 1.25 per cent (16.08) for good borrowers 
  
•  But rates can shoot to 3.49 per cent (50.93) for defaulters

Banks will look at your credit history as well as your loyalty to the bank. Banks will also look at your purchase patterns and payment behaviour for giving you the lower rate. Says Khandelwal: "The better customers get a lower rate.

Card Game: Good borrowers gain

This is how the industry works globally." On the other hand, if you are a defaulter, credit cards interest rates could go to a whopping 3.49 per cent or 50.93 per annum. The trend now is to offer better rates to good borrowers and penalise the bad borrowers. So, if your payment patterns are erratic, even a one-time default could cost you a lot.

On average, though, the interest rates for regular credit revolvers could hover around 1.99 per cent per month or about 26.6 per cent per year. The rate on unsecured personal loans hovers around 18-24 per cent. Of late, credit history has begun to form an important part of risk assessment for borrowers. As against a standard rate for all, banks are now increasingly looking at the risk profile of borrowers before giving them a loan. And credit cards are no exception.