Points to Consider when Choosing a Credit Card

Posted on Thursday, September 17th, 2020 | By IndusInd Bank

Credit Cards have become a necessity rather than a luxury. Credit Cards can help you in managing your finances, provided you use them in the right way. The one-size-fits-all formula doesn’t apply for Credit Cards. Each Credit Card has its own set of perks and benefits, which makes it necessary to do thorough research. Starting from the credit limit, rewards to annual maintenance fee, there are a lot of points that you need to check before making the final decision. So, if you are planning to apply for a new Credit Card, here are some important points that you must check to avoid any financial woes in the future. Read on.

Type of Card

There are approximately 15 different types of Credit Cards available in India. The first step in choosing a Credit Card is to identify the type of Credit Card that you need depending on your financial requirements. While some Credit Cards provide cashback and reward points, others offer discounts. The type of card you can use depends completely on your financial objectives, income and credit score.  So, if you need to travel a lot, go for a travel Credit Card, which offers benefits such as travel insurance, global acceptance and profitable currency conversion rates.

Annual Percentage Rate

The thumb rule of Credit Card payments is to pay the full due amount every month. However, if for any reason you miss paying the bill on time interest may accrue on the pending amount. The interest rate is displayed as an annual percentage rate (APR), which can be a fixed or variable rate of interest. Opting for a fixed-rate card is beneficial as you will know the amount of interest that you will need to pay if don’t pay the full due amount. So, if you carry a balance, make sure you take into account how the APR is calculated. It is advisable to avoid Credit Cards that compute the balance in two billing cycles as it will cost more.

Spending Habits

Another important point to consider when choosing a Credit Card is spending habits.  If you are planning to use the card for bulk purchases, choose a Credit Card that has a higher credit limit and low-interest rate. In addition, opt for a Credit Card that has a good Rewards Program so that you can earn some cashback or rewards for using the Credit Card.

The Annual Fee

Even if a Credit Card gives you a lot of benefits, you may end up spending a lot on the annual fee without knowing about it. Credit Cards that have an Annual fee also come with some attractive reward plans in return such as savings on dine-out or booking a movie ticket. These rewards may offset the Annual fee that you need to pay. It is advisable to opt for Credit Cards that don’t charge any kind of Annual fee.

Credit Limit

The Credit limit is the amount of money that the issuer of the card will allow you to borrow. The Credit limit is determined after checking your credit history. Depending on your credit history, the Credit limit may vary from a few thousands to lakhs. However, even if your card has a good credit limit, make sure you don’t max it out. Maxing out your Credit limit will not only harm your credit score but some Banks may also reduce your Credit limit to a lower amount. In addition, you will also have to pay a penalty for maxing out your Credit Card.

Balance Computation Method

Another important point to consider is the balance computation methods that apply to your Credit Card. The Card Issuer uses your average daily balance to find out the amount of interest that is due on your Credit Card payment. The average daily balance considers the balance owed at the end day during the billing period instead of calculating the same at the end of a week or month. Customers need to understand the method used by a Credit Card Issuer to calculate the interest. The reason is the method of calculation affects the amount of interest levied in the card account of the users.

Rewards

A benefit of using a Credit Card is the Rewards Program. The purchases that you make using a Credit Card help you earn reward points that can be used for several purposes such as retail purchases or booking a flight ticket. When applying for a Credit Card, choose something that helps you earn rewards when you use the card for certain purchases at retail outlets, grocery stores and online retailers. However, make sure you don’t overspend using the Credit Card to earn reward points.

Consequences of Picking the Wrong Card

Without proper research, you may end up selecting a wrong Credit Card, which may also harm your finances. The result- you not only end up overpaying but earn no benefits at all, benefits that are the USP of using a Credit Card. When you apply for a wrong Credit Card without proper research, you may end up spending more without earning any rewards. At times, you may end up choosing a Credit Card and earn reward points that you don’t plan to use. So, make sure you follow the points above, do thorough research before applying for a Credit Card. IndusInd Bank offers different kinds of Credit Cards that come with many benefits. If you are planning to apply for a Credit Card, check out the different options available at IndusInd Bank. To know more about the types of cards, benefits and all other details about our Credit Cards, click here.

Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.