UPI Credit Cards: Should You Use Them to Pay? The Ultimate Guide to Rewards and Risks
The introduction of UPI Credit Cards marks a revolution in how Indians transact, merging the convenience of UPI with the power of credit. Essentially, a UPI-enabled credit card (primarily RuPay) allows you to use your credit limit directly via UPI at merchant outlets (P2M).
For the first time, you can earn rewards, enjoy interest-free periods, and build a strong credit history on everyday digital transactions—from groceries to fuel. This is ideal for financially disciplined users who want to maximize rewards and formalize their credit profile.
However, it also carries the risk of making debt too easy. Before linking your card, understand the rules, hidden charges, and the impact on your CIBIL/Credit Score.
Table of Contents
- What is a UPI Credit Card and Why Was it Launched?
- How Does a UPI Credit Card Work? (Linking & Transacting)
- Key Benefits: Rewards, Convenience, and Interest-Free Credit
- Key Risks / Disadvantages: Overspending & Hidden Charges
- Real-Life Example: Maximizing Rewards on UPI Spending
- When Should You Consider Using a UPI Credit Card?
- How UPI Spending Affects Your Credit Score
- Alternatives You Can Explore
- Final Thoughts / Summary
- FAQs on UPI Credit Cards
What is a UPI Credit Card and Why Was it Launched?
A UPI Credit Card is a RuPay credit card that can be linked to UPI apps like Google Pay, PhonePe, Paytm, or BHIM. You can scan any merchant UPI QR code and pay using your credit limit instead of your savings account.
Before this, UPI was debit-only. By adding credit, NPCI achieved three key goals:
- Financial Inclusion: Millions familiar with UPI can now access formal credit.
- Credit Formalisation: Encourages users to build a credit history.
- Merchant Acceptance: Merchants can receive payments without costly POS machines.
💡 The RuPay Connection
RuPay is the only network currently live for UPI credit card transactions because NPCI manages both RuPay and UPI. Visa and Mastercard integrations are still underway, but RuPay had the first-mover advantage.
How Does a UPI Credit Card Work? (Linking & Transacting)
Step 1: Linking Your RuPay Credit Card
- Open your UPI app (PhonePe, Google Pay, etc.).
- Go to “Add Credit Card” or “RuPay Credit Card on UPI.”
- Choose your issuing bank (e.g., SBI, HDFC).
- Verify the card linked to your mobile number.
- Set a UPI PIN (different from your ATM PIN).
Step 2: Making a Payment
- Scan a merchant QR code (not personal).
- Enter the amount.
- Select payment source → Credit Card.
- Authorize with your UPI PIN.
- Done! Payment is debited from your credit limit.
⚠️ The MDR Factor
To encourage adoption, NPCI made transactions up to ₹2,000 zero MDR (Merchant Discount Rate). Merchants pay a small fee for larger transactions, keeping small vendors incentivized.
Key Benefits: Rewards, Convenience, and Interest-Free Credit
A. Rewards on Micro-Transactions
Everyday UPI payments now earn cashback or reward points—something debit cards don’t offer. You can now earn rewards on 50–70% more transactions than before.
B. Interest-Free Period (45–50 Days)
You get up to 45 days of credit before payment is due—improving liquidity and cash flow.
C. Unmatched Convenience
Use credit anywhere a UPI QR is accepted—from chai stalls to supermarkets—without carrying a card or relying on POS machines.
D. Build a Strong Credit History
Every on-time UPI credit payment adds to your credit report activity, helping you grow your CIBIL Score faster.
Key Risks / Disadvantages: Overspending & Hidden Charges
A. Seamless Spending = Hidden Debt
The biggest risk is overspending. UPI’s ease makes it harder to notice how much credit you’re using. A ₹500 snack could add to a surprise bill later.
B. P2P Blocked
UPI Credit Cards only work for merchant payments (P2M). You can’t send money to friends or withdraw cash—preventing misuse.
C. Hidden Charges
- Cash Withdrawal Fee: 2.5–3.5% + interest from day one.
- Annual Fee: Some cards charge yearly.
- High Interest on Defaults: 36–42% per annum if bills aren’t paid in full.
Real-Life Example: Maximizing Rewards on UPI Spending
Case: Suresh spends ₹15,000/month via UPI.
| Metric | Before UPI Credit Card | After UPI Credit Card (2% Cashback) |
|---|---|---|
| Monthly Rewards | ₹0 | ₹300 |
| Annual Rewards | ₹0 | ₹3,600 |
By paying his full bill monthly, Suresh earns ₹3,600 yearly—pure reward, no interest.
When Should You Consider Using a UPI Credit Card?
- You’re Financially Disciplined – Always pay bills on time.
- You Want to Build Credit Fast – Frequent small transactions help.
- You Value Convenience – Scan-and-pay credit everywhere.
- You Mostly Shop Locally – Ideal for UPI-QR-accepting merchants.
How UPI Spending Affects Your Credit Score
- Credit Utilisation Ratio (CUR): Keep usage below 30% of your limit to maintain a strong score.
- Payment History (35% Weight): Missing even a ₹500 payment can drop your score by 50–100 points.
- Credit Age: Longer responsible use = better creditworthiness.
💡 Pro Tip: Use the GoodScore app to track your CUR and get alerts before you cross safe limits.
Alternatives You Can Explore
1. Conventional Credit Cards (Visa/Mastercard)
Better for e-commerce, travel, and international transactions.
2. Buy Now Pay Later (BNPL)
Short-term credit for small online spends, but limited credit reporting.
3. Secured Credit Cards
Perfect for new or low-score users—build credit safely using a fixed deposit.
Final Thoughts / Summary
💡 UPI Credit Cards are a game-changer for financially savvy users—merging UPI ease with credit power. Use them to earn rewards and build credit history faster.
But remember: UPI credit ≠ free money. Pay your bill in full, on time, every month to protect your score and avoid high interest.
📲 Download the GoodScore app to monitor your credit score, track your utilisation ratio, and never miss a payment alert.
FAQs on UPI Credit Cards
What is the difference between a RuPay Credit Card and a UPI Credit Card?
They’re essentially the same. A RuPay Credit Card becomes a UPI Credit Card once linked to UPI. Not all RuPay cards are UPI-enabled yet, but integration is expanding rapidly.
Do I earn rewards/cashback on UPI Credit Card payments?
Yes. Rewards depend on your bank’s policy—some offer accelerated cashback, others standard points. Always confirm before transacting.
Can I use a UPI Credit Card to send money to a friend?
No. UPI Credit Cards only support Person-to-Merchant (P2M) transactions, not P2P transfers. This prevents misuse for cash withdrawal.
Is there a limit on how much I can spend per day?
Yes. Standard UPI limit is ₹1,00,000 per transaction, subject to your card limit. Note: Zero MDR applies only up to ₹2,000 per transaction.