Applying for your first credit card can be very exciting!
- Credit cards are convenient and handy to carry
- Most merchants across the country accept a credit card
- Credit cards reward programs are an important criterion while shopping for a credit card
There are so many cards available with various features and benefits. It is very much like shopping for a jean or t-shirt, or that good shade of lipstick or eyeshadow. It needs careful consideration of so many brands, features and cost.
How does a credit card work? – The Basics
A credit card is a credit instrument that lets you borrow money from the bank under certain conditions. A credit card allows you to pay for transactions at merchant establishments and online transactions. You can also withdraw cash at an ATM during emergencies.
A credit card comes with a fixed credit limit, up to which you can use the card every month. The limit is adjusted as and when you repay the amount. If you don’t repay the entire bill amount, you will be charged interest on the outstanding amount.
There are numerous factors that affect your credit card eligibility. As a beginner, you may not get a top-notch credit card. You will probably get a basic credit card with the basic features. With time, based on your spending habit and repayment history, you will be upgraded to better cards with superior features.
So, what should I keep in mind while getting my first credit card? We wanted to make things easier for you and jotted down the,
Important Points to Remember when applying for your First Credit Card
- Annual Percentage Rate (APR)
A credit card is basically a periodic loan. You borrow money from the banker and repay it next month. If you don’t repay, they charge you interest. Credit cards come with one of the highest interest rates. That is because they are a sort of unsecured loan. The best credit cards in the market have an APR in the range of 30% to 40% per annum. This interest rate is determined based on your income, age, credit score and few other factors. Pay attention to this key point and right out reject a credit card that comes with a very high APR.
- Rewards Program
This is one of the best benefits of any credit card. Check out the card’s rewards program. The number of points you earn for every Rs.100 spent is a good indicator. The more points you earn, the more rewards you get. Also, check for cashbacks and discounts at brand partners so that you can shop in their stores. It is also advisable to go for brand linked credit cards like fuel cards, travel cards, student cards, or shopping cards, based on your shopping habits so that you can reap maximum benefits for your spending.
- Revolving Credit Days
Credit cards offer what is known as ‘Revolving Credit’, meaning, you have about 45 – 60 days to repay the money you have used on your credit card. Once you make the payment, you get the credit back to spend it again. Usually, you get a few days before the billing date and up to the bill due date to repay the entire amount without interest. That too, there is a minimum amount payable that will prevent any additional interest charges on the borrowed money.
- Annual Fee
Banks usually offer basic credit cards to beginners without any annual fee, as a marketing strategy to bring in new customers. But once you are a few years old customers and want upgraded cards, you may have to pay an annual fee on your credit card. Annual fees range between Rs.500 – Rs.5000 per year, based on the features of the credit card.
Go through the features of the credit card thoroughly to determine if it is worth paying the annual fee for the card. These days, card companies waive off the annual fee for subsequent years if you spend a specific amount over the year. Learn about that too so that you can get annual fee waivers.
- Other Charges
Credit cards come with various other charges and fees like late payment fee, cash withdrawal charges, over-limit charges, etc., These charges will be mentioned in the prospectus you receive along with the card. Make sure to go through these charges so that you can avoid them by maintaining your card correctly.
- Credit Limit
Your credit limit is based on your income. This is the limit you can use on your card every month. As stated earlier, this is a revolving credit limit. It gets replenished as and when you make payments. Remember this limit and make sure that you don’t spend more than this. Or else you will be charged over-limit charges, which is quite high. Experts suggest that your credit utilization ratio should be 30% or less of your total credit limit. This allows you to repay the credit card bill comfortably.
What is the first thing to do when I get my first credit card?
The first thing to do is set your PIN number. It ensures that nobody misuses your card. Then go through the letter you received along with your credit card that mentions your credit limit, cash advance limit, interest rate, billing cycle, other charges and fees, and any information on the rewards program.
What is a good credit limit for my first credit card?
There is no ideal credit limit for first-time credit cards. This usually depends on your net monthly income and other existing liabilities. Since beginners have a low income, the credit limit will also be on the lower side.
Getting credit cards seems like the most adult thing to do once you start earning. Though a credit card has numerous benefits, if not used diligently, it can drown you in debt even before you realize it. One should follow strict discipline with credit card repayments. Knowing all the terms and conditions of your credit card will help you to use it to your best advantage.