How you use a credit card greatly influences your financial present and future. Credit cards can either support you economically or drain you financially. This journey begins right at the time you start looking for a credit card. So when you make this first crucial step, ensure that it’s a step in the right direction. Picking the right credit card is no rocket science if you are able to answer the following questions:
What is the credit card intended for?
One of the common mistakes we make is to get a credit card without defining its use. Do you need a card for travel or dining out, or to cut down on your fuel spends? Before you apply for a credit card, identify where or how you are going to use it. For instance, if you happen to travel a lot, you will benefit from opting for a card that offers air miles. However, if its primary use is to meet your petrol and utilities expense, opt for a card that offers zero fuel surcharge and cash back. When you know the card’s purpose, you will also be able to decide what type of rewards or cash-back offers will make you happy. Thus, once you have answered this question, you will be better placed to find the right card for yourself.
What is the applicable interest rate?
The interest component is referred to as Annual Percentage Rate (APR) on your credit card statement. Find out the interest rate applicable on your card in case of default. If you happen to overspend, opt for a card with a longer grace period.
Usually banks attract customers with offers, such as zero processing fees or no annual fee, but the catch is that such cards tend to have higher interest rates. When selecting such a card, read the fine print carefully.
What is the available credit limit?
The credit limit on your card is not uniform. It is subject to a number of factors, such as salary, education, credit history and workplace. Ideally, to maintain a good credit score, you should consume just 50 per cent of the credit limit. So, if you are a spendthrift, ensure that you maintain a credit limit that meets your shopping spend while leaving you with enough available balance so that your credit score is not impacted. And, if you happen to be a judicious spender, opt for a limit that meets your current use and has enough extra balance to help you avoid the tag of being “credit-hungry”.
What are the terms and conditions of the credit card?
Most of us rarely read the terms and conditions (T&C) of our cards. As a result, we often end up ignoring important information, such as cutoff dates, default interest rates and cash advance fees. Being unaware of such information can lead to higher dues on our cards. Therefore, I highly recommend you read and understand the T&C of your card so that you know exactly what you are getting in to.
Once you have answered these questions, you are on the right track to using credit cards intelligently!
Checklist:
- Know what you want to use the card for
- Know the interest rate
- Know the credit limit
- Know the terms and conditions
(The author is the Managing Director of Paisabazar)
