With scores of credit card companies vying for attention in one of the largest consumer markets in the world, choosing a card suitable for your needs can be daunting. From SBI to HDFC and Citibank to HSBC, each card issuer has its very own list of benefits and value back offers. Knowledgeable navigation is therefore a perplexing journey.
Look at RBI data: As of March 2021, India with a population of 1.3 billion had 62 million cards in force i.e., five cards per 100 persons. This accounts for very low penetration in India making the market fiercely competitive when it comes to new customer acquisition and the choices for a consumer difficult.
With a fair credit score starting at more than 650 and a regular monthly income, you can conveniently qualify for an all purpose entry level credit card with your preferred bank. Premium features do come with additional costs. Let’s understand how you can use a credit card wisely in seven steps.
1. Determine Spend Pattern
Before exploring credit card options for yourself, you must first understand that there is no ‘one size fits all.’ You cannot mimic the spending pattern of your best friend.
The first step is to analyze your own items of expenditure and to pick a card that is best aligned to your own lifestyle. Go through the following checklist and answer each question to assimilate what and where you intend to use your card.
2. Match Spend Pattern With Plastic
- Credit cards offer ease of purchase now and pay later. Put together regular expenses and aim for a credit card that serves the top three expense categories for you. For example, if your top expenses are shopping online and digital purchases e.g. food or movie tickets, your search narrows to a lifestyle and entertainment card that offers benefits like accelerated rewards for online shopping and value back offers on online bookings etc. Good picks could be SimplyCLICK SBI Card, HDFC MoneyBack Credit Card, RBL Bank Popcorn Card among others.
- If you have loyalty towards a particular brand, you should opt for a co-branded card to further enhance the available benefits. For example, Citibank Shoppers Stop Card offers instant redemption of reward points on each purchase. So, based on your patronage for a particular brand, you can pick a card that delivers greater value.
- If you are inclined towards offline purchases, you need a card that offers benefits on point of sale (POS). For example, a card like SimplySAVE SBI Card is suitable for offline transactions such as grocery shopping, dining and more.
- If you have sizable fuel expenses, pick a card basis your local transport requirements i.e. Bharat Petroleum SBI Card, Indian Oil Citibank Card.
- There is a range of premium travel cards that offer discounts and rewards for frequent flyers. A powerful travel card offers benefits on booking flights, hotel reservations, complimentary self and luggage insurance, cab bookings, concierge service among others. Premium benefits however, come with an annual charge and thus you should opt-in, only if your usage justifies the fee. For example, the IndusInd Pinnacle World Credit Card and HDFC Regalia Credit Card.
3. Assess Affordability
Annual Fees: Other than zero-fee cards, all credit cards have a non-refundable annual charge. You may find a premium card at zero joining fee, it is likely that there is an annual fee second year onwards. There could be a fee waiver on achieving spend milestones.
Interest Rate: Credit cards should be leveraged to avail free credit and certainly not to shoulder exorbitant (24% to 48%) interest costs on rollover dues. So, relatively lower rates should form an integral part of your decision making matrix.
Late fee: Delays in bill payments attract a penal fee. Examine the MITC document and try to minimise any future costs.
Foreign markup: Swiping your card overseas comes with a foreign currency mark-up fee, generally between 2.5% to 4%. The mark-up rate is disclosed in the terms and conditions. YES Bank First Exclusive Card offers one of the lowest mark-ups at 1.75%.
Grace Period: For payments, each card offers a grace period beyond the due date without any additional charge. Check and remember the grace period.
Rewards Program: Examine how to maximise rewards on the card spends. Check for expiry of reward points, and also determine the operative redemption process. Especially, if there are extra fees for claiming redemption benefits. Few cards can also offer redeeming points against annual fees.
Other Benefits: Credit cards can dazzle & confuse you with a bewildering bouquet of benefits. Fully internalise terms and conditions for all value-back and add-on benefits, which may include complimentary insurance, fixed or time bound partner programs i.e. frequent flyer miles, vouchers etc.
Credit Limit: This is the maximum amount that you can spend on the card. So, your monthly expenses cannot exceed the sanctioned limit. Building good credit history, will lead to higher spending limits, and will lift your credit score.
4. Examine Specific Personal Priority
Before taking a final call, however, it is recommended to look at some issuer specific benefits. These could be unique benefits that only a particular issuer offers to its customers. For instance, if you have very frequent rail travel, you may like to consider a card such as the SBI IRCTC Card.
5. Correct Usage
New users can commit errors in plastic usage, sometimes very costly. Prevention is always better than cure, a few tips:-
- Never share your credit card PIN and other details with anyone, even if the person claims to be from the bank. When you are completing a credit card transaction, make sure the EDC machine (the machine in which you enter your credit card PIN) is in your view and always double check the amount prior to entering the PIN.
- Since most of the banks are pushing towards contactless payments, kindly ensure the ‘contactless’ feature on the card is enabled only after your permission.
- Missing due date payments will attract a late fee plus interest on the outstanding. Furthermore, your expenses will no longer be interest-free till you pay the bill. A flag in the credit history also hurts your future prospects of a hassle free approval of credit facilities.
- You should swipe your credit card for an amount that you can afford to repay at the end of the billing cycle. Do not roll over the card, as the annual interest can be a punishing 24% to 48%. If you can’t deposit the entire amount, apply for an EMI facility and reduce interest rate to 15%-18%.
- Credit card cash withdrawals should be the last resort; opt for small withdrawals, that too only for emergencies. Additionally, frequent visits to the ATM could attract charges. In any case, this easy liquidity comes at a prohibitive interest cost of 2% to 4% per month.
- Card companies often run enticing offers on card spends. You should be watchful and spend as per your own plans. Earning rewards points should not be the primary motive for building up a huge card bill.
6. Multiple Credit Cards
It is a common perception that credit cards lead to a debt trap. On the contrary you can better manage expenses with multiple credit cards. Let’s discuss how you stand to benefit with two to three cards.
- Interest-free Period – Multiple credit cards help you extend the interest-free period on your card purchases.
Let’s elucidate this simple hack.
Say, your Card 1 has a billing cycle on September 30 and the balance payment will be due in about three weeks i.e. on October 21. You have 50 days of interest free period for spends made on September 1. Each passing day in September, the interest-free window will continue to contract. Eventually if you make a purchase on September 30, you have only 21 days of interest-free credit.
If you have Card 2, you can avail longer interest free periods. Make sure, Card 2 has a billing date in the middle of the month. The idea is to keep 15 days’ gap between the billing dates of the two cards. To execute in our example, use Card 1 from 1st to 15th of each month and switch to Card 2 for the expenses made between 15th and 30th.
Future planning in the timing of spends on multiple credit cards will help extend interest-free periods.
- Get the best deals – Each credit card issuer runs promotional offers and deals with specific retailers and brands. Some cards could be suitable for grocery or day-to-day shopping, while others may offer benefits on online shopping, food or cab or movie booking. Another set of cards may offer benefits on fuel purchase or bus or railway tickets.
7. Parenting Through Plastic
It is a universal aspiration for parents to desire the very best for their progeny. Whether they ripen as successful professionals, musicians or sportspersons, children will always be required to manage finances adroitly. And a credit card can be one of the first tools to impart financial lessons for future leaders.
- Emergency use: If the child is unable to get in touch with you, a card can help her independently look after herself. Decision making under difficult & pressing circumstances is an invaluable life-skill.
- Credit history: A credit card with a regular payment cycle is instrumental in building an enviable credit score. In due course of time, when further credit facilities are sought, a good credit score will be a high utility item for young adults.
In selecting the right credit card, you may of course discuss with friends who are at a similar point in their life cycles, and also with bank officials. Your own research however, is the overriding attribute. Thoughtful & judicious handling of a credit card offers flexibility and benefits which will surely lift your lifestyle.