Before starting this blog, I would like to give a disclaimer that I am not a proponent of credit cards, and hence I do not recommend to buy a credit card. The purpose of this blog is to make readers aware how you can choose credit cards, if at all you need to buy one.
A credit card may save you money on routine expenditures and help you establish a solid credit score when used sensibly. However, picking one credit card among the numerous choices available might be difficult, particularly for young professionals who don’t know much about credit cards.
Knowing how a credit card operates should be your first step before you start picking credit cards. You should view it as a way to borrow money that must be repaid on time rather than as “extra” money.
You will be better equipped to comprehend and weigh the advantages of credit cards if you have a basic understanding of them.
Eligibility criteria:
‘New-to-credit’ customers may not be eligible for credit cards from all card issuers, and those that do may only offer a few entry-level cards. Therefore, it’s likely that you won’t be able to apply for multiple cards if you have no credit record.
Although this is the case with the majority of new applicants for credit cards, young people with more incomes may have access to a greater selection of cards. The ideal option for employed individuals searching for their first credit card is to look at cards from the bank where they currently have a relationship or where their salary account is set up.
Know your need first:
Decide if you require a credit card primarily for credit score build-up, to increase your savings on frequent purchases, or for certain types of purchases.
An entry-level low-fee credit card with simple features and low qualifying criteria can be the best option for establishing a credit record for you. A secured credit card could also be useful if you are not eligible for any of these cards.
A cash deposit is needed as collateral for a secured credit card, which acts as security in the event that the cardholder doesn’t make their credit card payments as agreed. The credit limit is set by the deposit amount that you place. However this secured credit card works just like any other credit card. To begin with, people without a credit history could find this card to be a good fit.
Compare different options and card offerings:
If you want to use credit cards to save a significant amount of money, you need to weigh your alternatives and select the one that best suits your spending habits. For example, if you travel frequently, a travel credit card can help you save money on your trips by giving you free lounge access at airports, more hotel stay rewards, air miles, etc.
In the same way, a card that gives a greater reward rate on online purchases can be the best choice for you if you want to reduce your online expenses. For significant discounts, you might even choose cards co-branded with these online sites (that you frequently shop), if you have a strong brand loyalty.
Select from the options:
Once you’ve determined why you need a credit card and analyzed your alternatives, the next step is to learn how various credit cards might meet your needs.
Based on how they provide value-back to you, credit cards may be roughly classified into two categories: rewards and cashback.
When you make a transaction with a rewards credit card, you receive reward points that may be exchanged for items, discount coupons, air miles, or cash credit.
Conversely, cashback credit cards typically return a portion of your purchases to your card balance. So, it’s up to you to decide how you would like to get the value in return to the spending that you incur.
The total value that the card provides is influenced by a number of additional terms and conditions. You would like to know, for instance, how much the card costs as a joining or annual fee, how much the reward points that you receive are worth, whether you need to reach a specific expenditure threshold in order to receive certain benefits that are advertised, etc. You may narrow down the possibilities to suit your needs by asking yourself proper questions by doing self-evaluation of your spending pattern and needs.
An important point that we need to keep in our mind is that, the card spend rewards are generally set such that, it will entice you to make purchases to reach the spend threshold to avail the benefits. So, do not fall into that trap. If the spending is genuine, then do it. Do not splurge or do the spending just to reach the spending threshold within that specified period of time. Though you may unlock certain reward points or cash-back, the spending that you have done may be unwanted splurging. So, we need to keep this in mind while using the credit cards effectively.
Applying for Credit cards:
These days, you may apply for a credit card via the website of the card issuer or via online marketplaces where you can evaluate and select the best alternative. Although most people’s first credit card is an entry-level one, it sets the stage for future credit building and eligibility for higher cards.
A strong credit score also makes it simpler to get home loans to help you achieve your life objectives, such as buying a house (Again, taking any other loans except for a Home loan is a strict “No”, as taking debt is anytime a negative personal finance behaviour). Therefore, it’s crucial to start your credit journey by obtaining a credit card and carefully growing your credit score prudently.
Final thought:
Obtain your first credit card, use it sensibly, pay off the outstanding amount on time, and keep your Credit Utilization Ratio (CUR) low. Once you feel secure, go for better cards with more focused rewards that, when used responsibly, will raise your credit score in addition to helping you save more money.
One final word – “Do not over-spend with your credit card just because you have credit limit. It may lead you into a debt trap very soon, and it is very difficult to get out of the credit card debt trap”.
