A credit card is very handy if used appropriately, but it’s also capable of inflicting some serious financial damage if used improperly. Safety rules do apply, so when you choose a credit card, there are primarily six things to consider –
1. Spending habits
The first question you should be asking yourself before even choosing a card is how you intend to use it? Are you the kind of person who anticipates carrying a balance from month-to-month or who will pay off the card bill every month without fail? Are you going to use it just for the emergencies or to pay for everything?
If you’re the one who is going to carry a balance, then a card with the lowest possible interest rate and a low introductory rate is best suited for you. Also, seek for a card with a longer grace period and no annual fee so you don’t get hit with a finance charge.
If you’re systematic with your financial transactions and are going to pay the bill in full every month, then the interest rate shouldn’t be of your concern. If you’re going to use this card for a majority of your purchases, then search for a card with a generous credit limit and a solid rewards program. On the contrary, if it’s going to be used just for emergencies, then opt for a basic card with low fees and a low-interest rate.
2. The interest rate
On a credit card offer, the interest rate appears as the Annual Percentage Rate (APR). It can either be a variable rate or a fixed rate which is tied to another financial indicator that is the prime rate. A variable rate fluctuates from month-to-month and with a fixed rate card, you can determine the exact interest rate every month. But, there’s an underlying condition in a fixed interest rate card as it can change based on certain triggers, such as going over your limit, paying your card late or if the issuer decides to change it. Yes, it’s possible, all they need to do is to notify you.
3. Credit limit
The credit limit is the quantity of money that the issuer is willing to let you borrow. It depends on your credit history; it could be anything from a few thousand to lakhs of rupees. Always try to avoid a scenario where you’re close to maxing out your credit limit. It can brutally hurt your credit score, it can also lead to the issuer cutting down your credit limit and to add insult to injury, there’s a penalty imposed when you exceed your limit.
4. Fees and penalties
There are a lot of ways for a credit card issuer to make money off you. Certain common charges include fees for transactions, such as cash advances and balance transfers or for asking to increase your credit limit. In addition, there are also penalty charges levied for going over your credit limit and paying your bill late. The issuer doesn’t decline your card, rather charges a fee that keeps on piling up every time you commit a mistake.
5. Balance computation method
For those who are going to carry a balance, you need to understand how the finance charge is computed. The common method is an average daily balance, this means that the daily balances are added together and then divided by the number of days in the billing cycle. Fend off from credit cards that calculate the balance using two billing cycles as this results in costing additional money in financing fees.
Several card issuers provide with reward programs to their customers to persuade them to use the card. Supposing that you’re going to make the purchases anyways and the card issuer doesn’t charge extra for the rewards program it can be a pleasant benefit. So you got to compare credit cards and see which one works in your favor. A little research hurt no one.
These were the 6 primary pointers that you should consider before opting for a credit card. Issuers will portray their cards as the ‘Best credit card in India’, but don’t be tempted by it, do your bit of exploration before narrowing down on one.