QUESTIONS YOU SHOULD ASK BEFORE GETTING YOUR FIRST CREDIT CARD
Credit cards seem to be somewhat of a mystery. People don’t seem to understand how do they work, their purpose or what is to be done. This article will help you figure out what are your credit card needs, how to choose one that is right for you and how to handle them responsibly.
1) What are your credit card needs?
Credit cards have a huge spectrum of choice so it can be difficult to choose the right one for you. It is important to understand what are your monthly needs or where are you spending most of your money in a month. Is it on fuel? Does your job require you to travel a lot domestically or internationally? Are most of your expenditure happens in the shopping department? Whatever your expenditure criteria are, the key is to pick a credit card with perks for that department where you spend the most.
2) What is the joining fee/annual fee for the credit card?
This is something to keep in mind. How much does your credit card cost you? Does it have a joining fee or is there an annual fee? If there is a fee, make sure it is accompanied by adequate rewards, which come in the form of air miles, free fuel, reward points, etc. You will find that the bank may charge a joining fee in the first year and annual fee from the next year onwards or they may have a joining fee but no annual fee.
3) What is your credit limit?
Your credit limit is set by the bank based on your credit score. It is the maximum limit to which you are allowed to spend. It varies from person to person and is based on your credit history. Should you turn to be a high spender who always pays back on time, your bank might offer to increase your credit limit but do not splurge beyond the credit limit as you may be charged for exceeding your limit.
4) What is your cash advance and limit?
Banks have set a limit for a cash advance, which is usually lower than your credit limit. Ensure that you know what your cash advance limit and the charges which will be incurred. Remember that banks will charge you with fees and interest rates which, although high, will differ from bank to bank.
5) What happens when you only pay the minimum amount due?
You can pay your total outstanding on your card before the due date to avoid any interest charges. On the other hand, when you pay just the minimum amount, you will be charged interest for the whole amount utilized. So, it is better to pay off the outstanding within the interest-free credit period.
6) Your credit card is as good as your CIBIL/credit score
Your credit score is given by the Credit Information Bureau Limited, ranging between 300 and 900, as an indicator of your creditworthiness. The moment you avail of any credit instrument (e.g. credit card, personal loan, home loan, etc.), your score is generated. Your CIBIL score is calculated based on your track record of credit card payments, loan repayments, etc. The higher your score, the more creditworthy you are. So, ensure that you pay off your credit on time to not incur extra charges and to not let your credit score get affected.