Credit cards today have become an integral part of our lives. They save us from the hassles of carrying cash, allow us to optimise our finances better through interest-free periods and EMI options, enable us to maintain a good credit score and avail attractive cashbacks, discounts and reward points offered by banks. However, with several types of credit cards available in the market, choosing the right one can be confusing for a customer. Here are some factors to be considered while selecting a credit card.
Most credit cards aim at specific type of transactions by offering higher reward points and other benefits on those transactions. For example, while some cards offer cashback on fuel transactions or other daily spends, others offer more reward points on air travels, dining and/or hotel stays. Choose a card that will offer you maximum benefits, according to your lifestyle and spending habits. For example, if you travel a lot, take a credit card that offers travel benefits like air miles, lounge access and hotel vouchers.
Credit card issuers charge various types of fees for their services, like joining fee, annual fee, rewards redemption fee, late payment fee and cash advance fee. The joining and annual fee usually ranges between Rs 199–5,000 depending on the card category. However, many card issuers do not charge joining fee and/or annual fee. Many cards also waive off their joining fee on applying through online loan aggregators while others reverse their annual and joining fee on spending a threshold amount through their credit cards. Opt for a credit card whose benefits in the form of cashbacks, discounts, reward points and lifestyle programmes outweigh the various mandatory fees associated with it.
Credit limit refers to the maximum amount that you can spend on your card without incurring any penalty. Exceeding this limit results in incurring an over limit fee on the amount exceeded. Thus, opt for a card that offers at least 3–4 times of your tentative monthly credit card spends. Also, remember that having a higher credit limit will come in handy during financial emergencies.
Many credit cards, especially in the premium and travel segments, offer attractive joining bonuses or welcome benefits in the form of free vouchers and additional bonus reward points. Many card issuers also offer exclusive joining bonuses on applying through online aggregators. Compare the joining bonuses among similar cards before zeroing on a particular option.
Card issuers levy finance charges on non-payment or part-payment of outstanding balance by the due date and on cash withdrawals. This charge is levied right from the date of the transaction until the repayment of the entire outstanding. The finance charge can vary from 22–47% per annum depending on your card type. Though not paying your entire credit card bill on time or withdrawing cash using your credit card is never recommended, you should still consider these charges when applying for a credit card.
The approval of your credit card application primarily depends on your credit score, monthly income and occupational details. Each bank gives different weightage to these parameters. However, people with credit scores of 750 and above have higher chances of getting their credit card approved.
The writer is VP & head of payments products, Paisabazaar.com