Applying for your first credit card is a significant financial milestone. It can help you build your credit history, manage expenses, and even earn rewards. A credit card is a financial tool issued by banks that allows you to borrow interest-free money up to a certain limit to make purchases or withdraw cash. However, you must repay the borrowed amount within a stipulated period, usually with interest, if not paid in full by the due date.
Your first credit card is an exciting milestone, offering the convenience of interest-free spending and the ability to make purchases without carrying large amounts of cash. However, obtaining your first credit card requires careful consideration. It should teach you to manage your money effectively and help you build a credit history, which is crucial for your future financial growth.
Bankbazaar’s recent report on credit card highlights the key consideration for first timers and how they can apply and maximise their rewards. Let’s understand how to begin a journey for your first credit card.
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Eligibility
Age Criteria: Primary applicants must be between 18 and 60 years of age, while add-on card applicants must be at least 18-year old.
Income Requirements: Applicants need to have a stable income, typically a minimum annual income of ₹2.5 lakh to ₹3 lakh, varying by bank.
Credit History: A good credit history and a high credit score (750 or higher) significantly enhance the chances of getting approved for a credit card.
Nationality: Applicants must be either Indian residents or Non-Resident Indians (NRIs), with some banks issuing cards only to Indian nationals.
Employment Status: Stable employment, typically with a minimum tenure of one year, is essential for credit card eligibility.
Credit Maturity
It is essential to understand how to manage or use your credit maturely without ignoring the key aspects of your income, accountability, responsibility and debt. This helps you know the pros and cons of your credit behaviour and you can adjust your spending based on your income and repayment capacity. Here is the framework for being financially mature when it comes to your credit cards.
Consistent Income:
- Do you have stable income to pay your credit card bills?
- Do you have savings to cover your payments in a financial setback?
Accountability:
- Can you track your credit card bills and pay them on time?
- Can you safeguard sensitive info like CVV and passwords?
Responsible Spending:
- Can you stick to a budget and not exceed your spending limit?
- Do you understand the card’s T&Cs, such as not letting friends and family use your card, or not using a personal card for business expenses?
Debt Impact Awareness:
- Do you understand how your card use impacts your credit score?
- Do you understand the charges, interest rates, and penalties?
Where To Apply For Your Card?
Your Existing Bank
Existing and established relationships are always beneficial, whether they are with individuals or institutions like banks. Your rapport with the bank where you hold your savings or salary account can significantly impact the likelihood of your credit card application being approved.
Pre-Approved Offers
Pre-approved offers from your bank, especially if you have a high creditworthiness, offer a convenient option. However, it is important to carefully review the terms and conditions, interest rates, and associated fees before proceeding with the application.
Adhil Shetty, CEO of Bankbazaar.com, says, “Online platforms like BankBazaar offer a wide range of credit cards tailored to diverse customers. These platforms enable users to compare features, rewards, fees, and interest rates across multiple credit cards, helping them select the one that best suits their needs.”
How to Use Your Card Wisely?
Activate Your Card Timely: For security reasons, the RBI has mandated issuers that if the card is not activated by customer within 30 days of issuance, the issuers are liable to close any such credit card account within seven working days on receiving confirmation from the customer. To avoid cancellations, make sure you activate your card within the time limit and set your card limits.
Repay On Time and Full: Understand your billing cycle to ensure timely repayment of your bills. The billing cycle is the interval between the closing dates of two consecutive statements. For example, if your bill is generated on the 10th of each month, your billing cycle typically runs from the 10th of one month to the 9th of the next. You can change your due date at least once. Request your issuer to adjust your billing cycle so that the due date falls around the 5th, allowing you to pay your bills after your salary is credited.
Use Regularly: Regular use of your credit card with timely bill payments improves your credit history, resulting in higher spending limits and attractive loan offers. Additionally, to prevent deactivation under RBI rules, use your card at least once a year. Besides financial transactions, activities like statement generation, PIN changes, or adjustments to transaction controls also count as usage to keep the card active.
Maximising Your Rewards
No-frills cards offer basic credit card benefits without an annual fee, while premium cards provide higher credit limits, enhanced reward points, and lifestyle perks but come with an annual renewal cost. Often, annual charges are waived if your spending exceeds a certain threshold. Plan your card usage to maximize these benefits but avoid overspending just to earn more rewards.
Your Credit Health
Utilising your credit card responsibly is crucial for effective management. Regularly reviewing your credit report allows you to assess your credit status and identify any errors. Aim to maintain a credit utilisation ratio (CUR) below 30% and refrain from applying for multiple cards in a short span. Above all, ensure full payment of your credit card bills to avoid late fees and increased interest charges, safeguarding your credit health.