Credit cards are in vogue. As per the latest data by the Reserve Bank of India, there were nearly 77 million credit cards outstanding in India in May 2022. This is a big leap of 23% over May 2021, and over a 100% leap over May 2018 figures.
Credit card spends are also increasing. In May 2022, the average transaction on credit cards in India was Rs. 4782, including POS, online and ATM spends. This is also up 23% since May 2021 when the average transaction was Rs. 3871. Furthermore, we’re seeing above-average online spending. While the overall average per transaction is Rs. 4782, the average online spends as per RBI data for May 2022 is Rs. 6170.
BankBazaar customers too show a proclivity for cards that reward online spends. This is not surprising since we’re coming out of a pandemic. People now prefer to transact from the safety of their homes.
This boom in credit card spends would no doubt spawn customers who are new to credit or looking to take their first credit card. They need to learn how to carefully navigate credit. Here are some thoughts to that end.
How To Compare Options
RBI data shows that after two slow years in 2020 and 2021, credit card disbursals are accelerating again. The trends reflect on BankBazaar as well. We’re seeing a spurt in credit card disbursals, with a 95% increase in the first quarter year on year. Credit cards are easily available as credit policies for lenders have relaxed. There are also fintech players in the market offering attractive propositions to new-to-credit customers. But in this huge universe of hundreds of cards, what should a customer buy?
Customers can choose carefully among all these options. The card that works best for them is one that helps them either finance the lifestyle they’re in or helps them access the lifestyle they want. For example, if you prefer online shopping, get a card that helps you get accelerated rewards in that segment. If you’re heavy fuel spender or a frequent traveller, get a card that gives you fuel rewards, lounge access, or travel rewards. If you’re looking to buy appliances on no-cost EMIs, get a card that helps you buy your preferred electronic brands. With this, you’ll be able to narrow down on the cards that cater to your lifestyle. Avoid cards that don’t achieve what you need.
Timely Payment Is Important
This is most important. Anything you borrow needs to be repaid. Any dues on your credit card should ideally be paid in the same billing cycle. Carrying it forward or making minimum payments will attract interest. Not making minimum payments will attract penalties. People use credit cards for all sorts of things – foreign travel, fuel purchase, high-end shopping, or even buying groceries. The point is to minimise interest on some of these transactions, however attractive the rewards. If you were, for example, paying interest on your groceries, you are effectively making your groceries expensive.
Use the digital payment tools widely available to ensure full and timely repayment of credit card debt. You could also automate these payments via netbanking to ensure you don’t miss the deadline.
Spend Within Limits & Watch Your Credit Score
You may have a large credit card spending limit many times your monthly income. However, it’s optimal to stay within 30% of that limit. This will make it easy for you to repay your dues. It will also help you maintain a low credit utilisation ratio. This is good for your credit score. If your credit score remains above 750, you can easily get new loans. But if your spending is out of control and you’re unable to repay your card dues, your score will fall. Budgeting is key – as is staying within the budget.
With regards to your credit health, it’s important to keep an eye on your credit score. If you have any kind of ongoing debt, a monthly check of your credit score is good. It will help you understand how your credit use shapes your score monthly. If at any point your credit habits deteriorate, your score will fall. This should come as the shock you need to fix your credit habits. You need to remain above 750 if you are to get the best loan offers.
Practice Safe Digital Habits
Paperless banking has become an everyday reality – an idea accelerated by the pandemic. You can now access credit from the farthest reaches of this country. Places previously not serviced by bank branches now have customers who are able to access credit by completing their KYC in a completely digital manner.
Given how much online attractions are fuelling the rush to credit cards and digital payments, it’s important to mention that you must practice safe digital habits. There are basic safety measures like not sharing your card number, CVV and expiry date where you shouldn’t, and ensuring you have physical control of your card at all times. There are also the second level safety measures like tokenisation or using your app to limit your spends. Take a moment to educate yourself about how to use your card safely.
Getting a card that supports your lifestyle, timely payments of debt, budgeted usage, digital safety, and keeping a watch on your credit score will help you get the best out of your transactions.
(The writer is CEO, BankBazaar.com)