A line of short-term borrowing, credit cards are flexible credit instruments that come with the highest interest rates among most personal finance tools. The major benefit when using a credit card is that it helps build your credit score. Further, when it comes to utility, a credit card simplifies payments, assists with tracking expenses, and has benefits on offer from the lenders that could be highly valuable.
However, while it is an enticing prospect, investors must be sufficiently cautious when applying for a and take into account all the associated risks. Overall, taking your time to find the correct card for you and learning how it fits into your lifestyle can help you avoid compounding debt.
Here are the top considerations to keep in mind before applying for a credit card:
- Purpose: Know why you want to have a credit card. Is the purpose for everyday convenience, benefits on offer (cashback, discounts, or travel rewards), or added features (airport , etc.). Taking the time to understand your primary reason will assist you in selecting a card that suits your needs rather than picking one because it appears to be a good-looking card.
For this to be successful, you will also have to closely track your spending (monthly and annually) and check for how you spend money. Are you more of an online shopper, or do you prefer deals, or are you a traveller, or looking for fine dining deals, or is it more for household purchases? Your answer will help you pick the kind of card that gives the relevant rewards and benefits.
- Research: Do you research and compare various cards available to check for which is best suited for your needs. It is advisable to make a choice carefully rather than picking the first name you see. Compare at least three or four cards for factors such as annual fees, interest rates and rewards and perks.
You must also take into account the associated such as late penalty, transaction fees, repayment terms and other fine print before making a final choice. Ensure you grasp this information prior to applying for the card.
- Credit limit: Credit score is calculated by four prominent credit bureaus regulated by the central bank of India i.e. — TransUnion CIBIL, CRIF High Mark, Equifax and Experian, also known as Credit Information Companies (CICs), which gather your credit data and generate a report for banks and other lenders. It is best to know your credit limit before you apply for a card and keep a clear head for your actual capabilities when it comes to repayment and deadlines.
Notably, lenders will take your credit score into account before sanctioning your application. Having a good score makes your chances of getting approved better and can even get you a higher card with more .
It is best to take stock of the following factors for yourself: Can I repay the limit I am applying for? Do I often overspend? Do I have an emergency fund separate from the credit card?
- Value: A customer must consider what long-term value a credit card brings for you — Is the card lucrative even after 1-2 years after the initial sign-up phase?
Here, you can consider between basic and premium cards, where the latter can have but better features and rewards. However, for first time credit card users, a basic card can a good starter. Check your requirements, ability and habits before making a choice.
- Trust: It is advisable to get your credit card from a or lending company through the official website. Don’t rely on third-party links or unsolicited calls regarding “instant approval,” which may be unsafe.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.