Today, life without a Credit Card is unimaginable. It offer ease of use and repayment, and is a great medium to build our credit profile, which is one of the key parameters that decides our eligibility and the pricing for buying products like personal loans, home loans etc.
Given below are some factors that you need to consider while selecting your credit card:
Most of the credit cards are aimed at certain types of customer segments by offering some sort of points and other benefits on specific type of transactions. For example, fuel cards come with cashback on fuel transactions, others offer benefits on grocery or other regular spends. Credit Cards with travelling benefits offer frequent travelers air miles or reward points on booking, access to lounge at airports, hotel stays etc. Similarly, some cards also offer up to 5-10% cash back on utility spends. Thus, carefully analyze your spending and transaction pattern and then go for the card offering maximum benefits according to your need.
Some fee is levied on making transactions through ATM and on non-payment or part-payment of outstanding balance on the card by the due date. This charge is levied from the transaction date until the repayment of the bill amount. Finance charges can vary widely from 20 to 45% p.a. depending on your card. Although, it is advisable to avoid using your Credit Card to withdraw cash from ATM, because of its high interest rate, comparing the finance charges is still important as there always remains a possibility of incurring this charge due to some unavoidable circumstances or financial emergencies.
Credit card & cash limits:
Credit card limit refers to the maximum amount a card issuer allows to draw against its card, without incurring any penalty. Exceeding this cash limit leads to an over limit fee on the amount exceeded. This limit is communicated to the credit card holder at the time of the delivery of the card and in the subsequent monthly statements. Cash limit refers to the maximum amount that a cardholder can make transaction from ATMs through his credit card.
These limits are fixed on the basis of the credit score, repayment history, income and many other factors. Credit card issuers can also increase or decrease the credit and cash limits of existing cardholders on the basis of these factors. In such cases, the card issuer will immediately inform you stating the reason, through SMS or e-mail, followed by a confirmation in writing. Credit cardholders seeking to increase the credit limit can request their card issuers by directly writing to them and providing financial documents to prove their income.
Expiry of reward points:
Mostly, credit cards reward points expire after a certain period, usually 1-3 years from the date of earning those points. However, there are few card issuers/card types, whose reward points never expire. For example, reward points of credit cards by Citibank do not expire. Always prefer cards without any expiry period as this feature may force you to indulge in avoidable expenditure.
Credit score and other eligibility conditions:
Credit score plays a major role in the approval of your application for credit card. Usually, people with credit scores above 750 have greater chances of credit card approval. Other major eligibility criteria include your monthly income and your occupational details. While not much can be done with your monthly income, occupation, location, within a short period, you can improve your credit card eligibility by ensuring an error-free credit score. So, always avail a free credit report before applying for a credit card and report the errors, if any, with the credit bureau to prevent them decreasing your credit score and hence, credit card eligibility. Do not apply for too many cards within a short period as credit bureaus consider such action as a sign of credit hungriness, and can reduce your credit score. Instead of directly applying with multiple card issuers, visit online credit card marketplace to compare the various credit card options available on your credit score, job profile and monthly income without reducing your credit score.
Balance computation method:
If you’re going to keep a balance, you need to know how the finance charge is calculated. The common method is average daily balance, which means that the daily balances are added and then divided by the number of days in the billing cycle. Avoid credit cards that compute the balance using two billing cycles; this cost you more money. There are many cards that don’t use it.
As you can see, deciding the right card can be hard. But you can make the process simpler by considering your preferences .
In short, the best credit card for you will depend on whether or not you are going to carrying a balance. For those who do carry a balance, finding a card with the lowest interest rate will always be the priority. Keep in mind that maintaining or improving your credit score will make this process much easier and smooth which means, at the very least, paying the minimum balance on time every month and keeping account balances below your credit limit.