How to select a credit card

By Vinit Maniar

 

June 22, 2012 0 Comments

The words “credit card” in these economics times, will induce fear into the hearts of even the most gallant human being. Hence, the first question to ask yourself is why do you want a credit card? Is it because you like how the shiny plastic reflects light or is it because you understand the various advantages that you receive with having one. Swiping a small plastic card does not induce the same emotion as cold hard cash; this is just the way we are programmed, so understanding the effects it can have on our life is imperative. Now, once you have decided that a credit card is right for you, its time to learn the steps to obtain the best suited card for your future.

Credit cards are termed as unsecured credit; hence a bank must be sure that you will repay them in an appropriate period of time. Now, in case you are just starting out with your career and you have little knowledge of finance and no income, you are not likely to be approved for a credit card. The best procedure in this case would be to get a checking account in a well-respected bank, use it for about a year. You will also be given a debit card along with the account. Once you have enough knowledge of finance and your own income, apply for a credit card.

 

FEATURES OF A CREDIT CARD:

Annual Fee

Now in case of a person looking for his/her first card, it is recommended that you look for a card with no annual fee. A card with an annual fee usually gives you a larger credit limit and cash back in case of certain expenses but for an initial user, the cons outweigh the pros.

Credit Limit

This is the maximum amount of credit that the bank offers you. This feature must be used very carefully since credit is money that is still not paid by you so it must not be taken for granted.

Cash Withdrawal Limit

If you swipe your card for cash, then this is useful for you, but it is recommended that you use debit cards for yielding cash.

Acceptability

Is your card accepted across wide range of establishments? Is it accepted internationally? While Visa and MasterCard are universally accepted, Diners and American Express have limited acceptability.

Other charges and penalties

Besides fees and interest, remember the bank also charges you various other fees like late payment fees, cheque bouncing fees, over limit fees, etc. Watch out for these fees, as they are very high.

Quality Of Service

Not all banks provide the same level of customer service. Check out if the bank offers 24×7 customer service for its credit card customers. This is helpful if you have to report stolen card, check your credit limit or want to discuss any billing problem with the customer service.

 

HOW TO COMPARE CREDIT CARDS:

Rate Of Interest

Interest is applied to your outstanding balance from a previous billing cycle. You must be very careful since these rates can be hiked by banks at any time. You should select a card with minimum rate of interest. The interest rate can range from 6% per year up to even 40% per year. Just remember that if you pay your bills on time, you will not be charged any interest.

Based On Your Requirements

The next thing you must look for in a card is the reward points you earn in the area where you spend the most, for example, if you travel quite a bit for work, select a card with high flight related reward points.

Annual Fee & Joining Fee

As I said earlier, your first card should not have any annual or joining fee. You should closely analyse these fees to make sure you get the best deal.

Grace Period

This is the period that is given to you to pay off your balance before an interest is charged. It is important to keep a set date to pay off all your bills so that you do not fall short. The grace period can be from as high as 55-60 days or as low as 15-20 days. Hence you should select a card with a maximum grace period.

Lucrative offers

Now the greatest feature of these cards through which the redanar app was born! Each credit card will have a long list of offers running into the hundreds. These range from dining to travel to beauty & spa and many others. Hence select a card with the maximum number of offers that are in your field of interest.

 

THE FINE PRINT

There are the specific terms of the credit agreement, including annual fees, low introductory interest rates (which will likely skyrocket after a fixed period of time) and rewards benefits. Please read through the fine print carefully before signing anything. Use the factors given above to guide you through the process. Also, look out for excessive fees, such as balance-transfer and late-payment fees.

Keeping no balance on the card is an extremely good financial habit, and will definitely help you in the future. With the advent of the internet, you are able to link the credit card with the bank account and pay off your credit card online, and that is a big convenience. This makes it easy to pay off your balance if you’re busy or out of town. If you do have some outstanding balances then keep track of the interest rate as it could be hiked at any time & pay it off as soon as possible.

Now, another important tip is to use your cards in such a manner that you get thousands of rupees worth gifts and cash back each year.Having more flashy plastic cards than anyone else does not do you any good, the idea is to manage them in a way such that you get most benefits out of your day-to-day purchasing activity.

CONCLUSION

Even though getting a credit card right after the credit crunch might not seem like a good idea, if done properly can be a major boon in your life. The key is to use them responsibly and pay off the balance in a systematic manner. Also, do not forget to user redanar to check offers on your cards!

Note: This article was written by Rohan Marwaha (our summer intern).