People opt for a credit card in order to have some extra buying capacity available whenever required. But this decision and your spending’s with it can make or break your credit profile. The payment landscape in India was largely dependent on the limit of a debit card for a very long time. However, the situation has evolved over a period of time where more and more millennials are relying on credit cards to make big and small purchases.
One thing that every credit card holder must bear in mind is that they need to be extremely disciplined with their credit card expenses. In simple words, they need to be aware of the fact that this will be an additional expense every month apart from other expenses that they usually pay for by a debit card.
A rising credit card is never good for your credit score and your overall credit profile as reflected in your credit report. Every negative entry on it can hamper your loan application evaluation process drastically.
Related Read:5 Major Ways Credit Cards Affect Your Credit Score
Basically, the most important quality of a responsible credit card holder is discipline. Now, let’s take a look at the types of credit cards that an individual can avail in order to enjoy that extra buying cushion!
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Basic Credit Cards: Best for new cardholders! They offer a
minimum credit limit based on the income of the applicant.
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Secured Credit Cards: If you are often
left asking yourself “why is my credit score still low”,
then using secured credit cards is a great way to turn the tables. The applicant will
have to pay the amount equal to the credit limit in advance and make
transactions for that amount through the cycle.
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Credit Cards without an annual fee: Many banks offer these
credit cards to their loyal account holders or extend it during a special offer
season. Most suitable for those who do not use their credit cards often.
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Cashback Credit Cards: Individuals who shop often could
use some cashback from time to time. These cards also offer fuel cashback which
is beneficial for those who commute to and fro.
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Travel Credit Cards: A traveler moving across different
countries cannot be concerned about exchange rates and conversions each time. A
traveler’s credit card offers travel insurance, global acceptance, and better
conversion rates.
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Premium Credit Cards: These cards are offered to selected
few users. It provides premium access to golf clubs, airport lounges, and
several other benefits. Apart from that these cards come with a high credit
limit.
- Business Credit Cards: Entrepreneurs need to make big transactions without worrying about the daily transaction limits, which is where a business credit card comes in handy. They have high limits and extended only to those businesses that have proven their creditworthiness. Using a business credit card diligently under 30% without missing on the repayments can also positively contribute to your business credit score which can help you secure business loans.
But before assessing which credit card will be the best fit for you, it is important to evaluate these parameters first:
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Spending habits: Every card has a different set of
benefits and credit limits that are tailored for different spending habits. So,
it is very important to identify the purpose of using a credit card.
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If you are a shopper, then going for a credit card with a
good reward program would suit you best. It could also be beneficial to
consider the limit offered in comparison to your monthly income.
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If you want to build your credit
score, then go for a credit card with a low credit limit and no
annual charges. This will ensure that you don’t burden yourself with large
credit card dues and build your credit score peacefully.
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If you want a credit card to be used only in cases of
emergencies, then go for a card without any extra benefits or charges. Go for a
basic credit card that can serve you in times of absolute need.
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Interest rates: The interest rates can vary depending on 2
factors, one is the type of card and the other is the type of cardholder. There
are banks that levy a flat interest rate on all credit cards. But make sure you
evaluate this aspect in great detail to ensure you don’t end up paying a large
interest rate. Another aspect to consider is the interest-free period if any.
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Incentives: Credit card issuing companies are constantly
on the lookout for new customers and to attract new customers, banks keep
coming up with a few exclusive sets of incentives that would be extended to
only those applicants who would apply in the given time period. It could be
anything from an interest-free EMI to cashback and reward points. Do consider
these while applying for a credit card.
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Fees and charges: Some banks charge an additional joining
fee for premium cards that have a higher credit limit. On the other hand, there
are cards that levy no charges at all. So make your decision keeping in mind
the fees in combination with the kind of spending limit you carry.
- Credit limit: Last, but definitely not least, your credit limit is a very important parameter to consider. If your income is much lesser than your credit limit, then you will have to be extra cautious about your spending spree with the credit card. A higher limit attracts higher expenses but you should always set a limit for yourself depending on dues you can clear each month. Make sure you don’t have a rising pile of credit card debt.
Always keep in mind that every credit card transaction of yours gets recorded by the bank and reported to Credit Information Companies like CRIF that calculates your Credit Score. It is important to keep a special eye on the loan EMIs you pay through your credit card and your overall credit card dues to be cleared each month.
Never forget to keep a constant check on
your Personal Credit Score to ensure that only
the right credit entries are recorded by your bureau.
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