A credit card can be a useful tool for working on your credit profile, whether you’re trying to build it for the first time, rectifying your past financial mistakes or just trying to give your credit score a nice push-up.
Choosing the right credit card is a bit tricky. It involves some amount research and an understanding of your spending pattern.
There are a lot of factors to be considered while applying for a credit card. We’ve listed some dos and don’ts to help you choose the right credit card and use it responsibly.
How to get a credit card: The dos
Do research cards based on your credit score.
Your chance for a credit card approval depends on your credit score. Usually, a credit above 750 is considered good enough to secure a credit card. The first thing to do is, check your credit report online. RBI has mandated all the four credit bureaus in India to provide free credit report once every year. You can also logon to gullakh.com for getting a free credit report with score. Most of the card issuing companies look for existing credit history. It means you may be eligible only if you have availed any loan or credit card in the past. But what should the first time credit card seeker do then? The answer is given here.
Do consider choosing a secured credit card to start.
If your seeking a credit card for the first time, or if you’re trying to rebuild your credit after damaging events like a lost credit card used by miscreants etc, a secured credit card, could be a saviour. It’s backed by a fixed deposit you provide, which serves as a buffer against you defaulting on a payment.
Credit Cards against Fixed Deposit are best for:
People having low credit score or no credit history.
People who fail to meet the income criteria.
People who have just started earning.
People who live in an area which has been categorised as a negative or cautious area by the bank.
Employees of organisations that are blacklisted by the bank or have a bad reputation.
Do consider your spending personality.
Choice of a credit card should be dependent on your lifestyle. There are broad categories in which credit cards can be classified. These are:
You can get the maximum out of your card, only if it suits your spending pattern. It’s good to have a look at your spending preferences and then choose a credit card.
Do read the fine print.
Make sure you read and understand the most important terms and conditions(MITCs) of credit card you’re interested in before you apply. Use your card responsibly based on the MITCs.
Do watch your credit utilisation rate.
It is usually recommended to keep your overall credit card utilisation under 40%. You can calculate your credit utilisation rate by dividing your total credit card balances by your total credit card limits. Lower credit card utilisation shows that you can use credit responsibly and are not facing a financial crunch.
How to get a credit card: The don’ts
Don’t apply for the first credit card offer that comes to you.
Low-interest rate, great joining perks and other free-bees should not be the sole deciding factor for getting a credit card. You choice should be based on you spending pattern. For example, if you travel a lot by train in India, IRCTC Platinum SBI Card would suit you as it gives a waiver of 1.8% transaction charges and also gives utp 10% value back on purchasing train tickets on irctc.co.in
Don’t miss a payment.
You can build a good credit score only if you keep paying your credit card bills on time and in full. Just one missed payment in any month can remain on your credit report for up to seven years and could always be a blot in your credit report. Consider setting up automatic direct debits or email alerts or SMS alerts to remind you when it’s time to pay your credit card bill.
Don’t carry over a balance.
Carry over of balance month on month is not a good idea as you get charged heavily as interest rates are around 3.5% per month. If you can afford to pay, clear all of your credit card bill in full every month to avoid interest payments. If the bill is too large, paying more than your minimum amount due can still reduce your interest outgo.
Also Read : 3 Credit Card Myths: Busted
Don’t close your other card accounts.
A new card doesn’t mean you have to or should close your other credit card accounts. In fact, closing your oldest credit card account could shorten your credit history and in turn lower your credit score.
Don’t apply for multiple cards at once.
When you apply for a credit card either at the bank branch or online, it creates an enquiry in the credit bureau. It is called a hard inquiry. Several hard inquiries within a short period of time can reflect that you’re desperate for credit and will also lower your credit scores. Rather, consider narrowing down your search for credit cards and applying for just one at a time.
By following these simple tips, you’ll be in a position to identify the right card for you and use it responsibly without affecting your credit score. The first time credit card seekers can also get one, without any hassles and start their journey to an excellent credit score.