Credit cards are the cards that are issued by financial institutions and help to borrow money from them to make the payments of goods and services. The borrowed money plus additional charges (if any) needs to be paid back by the credit card holder. Here are 13 things that you need to know about credit cards in India:
1. Your Income
Numerous questions are asked when one you applies for a credit card. Credentials like age, address, in-hand income per month and employment type.
But from all the information asked, the information regarding your income is the most important because it decides your repayment capacity each month.
Higher income indicates your ability to pay bills on time and consistently. So if someone is earning Rs.60,000 per month, he/she is more likely to be eligible for a credit card rather than someone earning Rs.25,000 per month.
The income that you earn is also an important factor for the bank to set up your credit limit at the time of issuance of the credit card.
2. Your Existing Relationship With The Bank
It becomes easy to get a credit card when you have salary or savings account in the bank. And it becomes easier if your accounts were handled properly and do not have overdrafts.
The reason behind this is that the bank can easily track your activities and verify the income details and they can also judge how responsible you have been over a period.
Let’s take an example, if you want to have a credit card from AXIS bank but you have a salary account in HDFC bank, it would be suggested that you apply for a credit card from HDFC bank; the reason being that you can easily apply online in the same bank where you have the salary/savings account..
3. Your Credit History
Your past credit history matters a lot if you are planning to apply for a credit card. Credit Information Bureau (India) Limited (CIBIL) reports are checked to know the credit history of before you are issued with a credit card (generally for a second credit card); this report also reflects if you have taken any education loan, personal loan, car loan, home loan, etc.
It checks the payment status of the loan taken by you; as to whether the payments are on time or delayed. The CIBIL report also states the latest credit score.
4. Purpose of Credit Card
It’s important for you to understand the purpose you are applying the credit card for. There are many varieties of credit cards available with different banks.
So, if your purpose is to primarily spend on shopping and dining, then you can choose the credit card which has maximum benefits pertaining to that area specifically.
5. Credit Cards with an Annual Fee
Few credit cards are free for a lifetime but there are cards which come with an annual fee starting from Rs.99 as well.
If the purpose of your credit card is basic in nature then you should go for the free lifetime credit card. But if 35%-50% of your expense depends on credit cards only, then it makes sense to go for the annual fee credit cards.
These annual fee credit cards are premium cards and they offer some really good deals or benefits and they also provide different ways to save money. So, by being a premium member you get maximum benefits like cash backs and higher reward points because these cards have tie-ups with hotels, airlines, shopping stores, etc.
Let’s take an example, if you travel a lot by airlines, then you can go for the signature credit card offered by HSBC, which comes with an annual fee of around Rs.3500, and has tie-ups with Makemytrip.
6. Credit Card Against a Fixed Deposit
Yes, you can get a credit card against your fixed deposit in the bank. There are Instant Credit Cards in few banks, that offer you to open a fixed deposit in their bank and get a credit card against it.
So, if you have a low credit score and the banks are rejecting your credit card application, then this is the most beneficial way to apply for credit cards. Getting credit card against your fixed deposit also helps in improving your credit score if your credit score is messed up.
7. Credit Card Interest Rate
It’s important for you to know and understand the interest rates applicable to the credit cards. Ideally, you will choose a credit card which has low-interest rates, lowest fee, and maximum benefit.
But, it is difficult to get a credit card with all the above offers. Pick a credit card according to your preference and priority. No one wants to pay excess interest on credit cards, so just be aware!
8. One Credit Card Serves The Purpose
If you already have one credit card then you might keep receiving offers to apply for another credit card. However, it is not important that you apply for these credit cards also.
Spend some time and think if you really need another credit card. And if you think you do, then go through the various pros and cons of having another credit card. Having a number of credit cards can have a negative impact on your credit score.
9. Low Credit Card Limit
When you apply for credit cards, you know the usage of that credit card. So, to keep your expenses in check, keep the credit card limit low.
To decide the credit card limit, calculate your estimated expenses. This will always help you to prevent excess use of your credit card.
10. Monthly Payment of Credit Card Balance
If you keep paying the end balance of the credit card each month, then you can avoid the interest charges and have a good credit record.
There is an availability of interest-free grace days provided by the credit card company.
Paying off the balance in that period will help you pay the interest-free amount.
11. Safe and Active Usage of the Card
It’s important to keep the credit card active, even if you are using it just for emergencies. At least make small purchases and keep it nimble. Don’t forget to pay the credit card balance at the end of the month.
For the safety of users, online transactions are done using OTP or authenticated static password. This ensures card safety and makes sure that the card is in the hand of the right cardholder.
12. Facility of EMI
A credit card helps in deferred payments if you want to make a huge purchase and do not want to sink into your savings. You can also choose to make equated monthly payments if you so wish.
This helps you because you aren’t paying a lump sum for the purchase made. It’s always better to pay through EMI rather than taking a personal loan to make that huge purchase.
Credit cards have hidden charges like late payment fee, renewal fee, processing fee and joining fee. It’s important to know about these charges beforehand.
Since the bank balance remains the same after paying through a credit card, it might be tempting to keep using it. The user must keep the high interest rates in mind because it might be applicable after the interest-free period is over.
Disclaimer: the views expressed here are of the author and do not reflect those of Groww.