Updated: Jan 4, 2022, 4:49pm
Introducing a credit card in your wallet can be financially liberating. With pre-approved credit limits, 40-50 days of interest free credit and value added benefits on transactions such as cashbacks, rewards etc., there are multifarious perks of owning a credit card.
India’s 1.3 billion population is supported by a mere 63.5 million cards in force (CIF), as compared with 1.1 billion CIF for the 320 million Americans. In other words, for 2000 Indians we have 1 credit card, whereas for every 2,000 Americans there are seven cards. Indian demographics add an even greater skew i.e. we have an astounding 500 million under the age of 21. Accordingly, the future aggregate demand for first time credit cards is a mind-boggling 100s of millions.
In India, a humongous customer base is therefore yet to commence its maiden credit card journey. For first-timers, there is a clear & present need to familiarize themselves with all relevant aspects of credit card selection and usage.
Your credit history and repayment capacity are the two most important factors that determine your eligibility for a credit card. The card issuing bank will assess your creditworthiness prior to extending a credit facility.
The bank would typically look for the following parameters:
Fresh applicants facing a challenge with the above attributes can initially opt for secured cards i.e. a card issued against a fixed deposit for 80% value of the bank deposit.
A secured credit card is one of the surest ways for first timers with low or an unverifiable income. Those with red flags in their credit report can also avail a secured credit card and gradually build their credit history, and then graduate to traditional credit cards i.e. unsecured credit facility.
1
ICICI Platinum Chip Credit Card
Annual Fee
NIL
Reward Points
Get 2 PAYBACK points on every INR 100 spent for retail purchases.
Fuel Surcharge Waiver
1% fuel surcharge waiver on transactions of maximum INR 4,000 at HPCL pumps.
On ICICI’s Website
2
IndusInd Bank Legend Credit Card
Issuance Charges
INR 9999 + 18% GST
Annual Fee
Nil
On IndusInd Credit Card Application
3
Bajaj Finserv Insta EMI Card
Interest on EMIs
Nil
Loan Amount
2 lakh
Repayment Tenor
One can repay the EMIs in between three to 24 months
On Bajaj Finserv Insta EMI Card Page
Read and fully internalize the most important terms and conditions (MITC) document that is also available on the credit card issuing bank’s website. With an eye on your owned preferences and priorities, compare and contrast the following parameters:
Joining and annual fee: When signing up for a credit card, a one-time joining fee is charged. It can be as low as INR 500 for the very basic cards, climbing to tens of thousands for the ultra-luxury plastic. A few starter cards also come at zero cost or no joining fee cards; sometimes banks also run limited time promotional offers for zero joining fee.
Annual fees: Every year, you will be charged a fixed annual fee, usually same as joining fee. Many cards also offer annual fee waiver with achievement of spend milestones.
Finance charges: If the cardholder fails to repay the outstanding balance for the billing cycle, the amount is rolled over to the next month. Finance charges on credit cards are onerous and range from 24% to 48% per annum. All other attributes remaining equal, it is naturally best to opt for a card with the low interest charge.
Late payment fee: Additionally, a late payment fee will also be levied in the next statement cycle, if you miss the payment completely.
Cash advance or ATM withdrawal charge: Unlike debit cards, ATM cash withdrawals with credit cards attract a fee that can range from 2.5% to 3.5 % per instance. Cash withdrawal should be restricted for emergency use only. In fact, new users should avoid this facility.
Over limit fee: Each credit card has a pre-sanctioned credit limit and as you breach this limit, an over limit fee is applied. It can range up to 2.5% to 3.5%.
Foreign mark up: Your credit card comes with a foreign currency mark-up fee of 2% to 4%. This is basically a charge you pay for swiping your card overseas and for making foreign currency payments.
Choices have consequences, first-timers should be totally aware of all of the above and not get unpleasantly surprised.
Your credit card allows you to buy now and pay later: you get a free credit period of up to 40-50 days. For example: your card generates card statement or the bill for the previous month on say the 1st of every month; thereafter, you get an additional 15 days to settle the bill amount. Hence the last day to pay for the expenses incurred during the previous month, would be the 15th of the next following month.
Novices should always determine the total free credit cycle, the corresponding billing date and the payment date before availing and utilizing a credit card. Always observe a strict discipline around the payment cycle.
Besides offering you a free credit period of up to 50 days, your credit card is also an excellent tool to build your credit score. By repaying your credit card bills on time, you can become what is popularly referred to as “a customer in good standing”.
A word of caution: make sure you do not exhaust the credit limit each month and appropriately manage a conservative credit utilization ratio. Disciplined usage of credit cards ensures a sterling credit score, thereby guaranteeing favorable terms for your future funding requirements. For example, a personal loan, a car loan, a home loan, among others.
By depositing the minimum due amount for the statement cycle, you can roll over the balance outstanding to the next billing cycle i.e. without having to pay a late payment fee. Since rates of interest are very high, the roll over option should be only sparingly exercised.
By rolling over card balance month on month, you shoulder a prohibitively high interest cost. You are best advised to convert the card outstandings into EMIs, which will result in a substantially reduced interest cost.
Furthermore, you will get additional time to properly manage your cash flows and conveniently repay the outstanding amount as per a 6 or 12-month EMI plan. Some banks also offer to convert a single high value transaction into low cost EMIs.
Precaution and prevention is the predominant mantra: transact only at reliable websites, terminals or stores; ensure the merchant operates the plastic in your presence; and never share your PIN with anyone. In your mobile, save your credit card issuer’s hotline help number, so that you can swiftly block the card and raise a dispute, if and when the card is compromised.
Whereas your card is insured against online theft and your interests are indeed well protected, you must however equip yourself for an immediate and correct reaction.
Always keep in mind that there is no one-size-fits-all product. You should make your pick according to your profile and your own cash flow requirements.
Different strokes for different folks. Your friend could be an advanced credit card user with separate plastic for travel, lifestyle and shopping, you may however require only a single all-in-one credit card.
To understand the underlying differences between a friend’s and your credit needs, analyze your spend habits. Broadly estimate where and how much you would require to consume credit. For instance, if you are an online shopper at various ecommerce websites, credit cards like Amazon Pay ICICI Credit Card or Flipkart Axis Bank Credit Card could reward you with free shopping. However, if you transact beyond e-commerce and want to use the card extensively for payments, grocery shopping etc., cards like Citi Rewards Credit Card or SBI SimplySAVE Credit Card are recommended.
On the other hand, frequent travelers would want to hold a credit card with complimentary airport lounge access, travel benefits, value back offers on bookings, low mark-ups on forex spends. Thus, determining spend patterns is one of the crucial steps prior to applying for a well-aligned credit card.
Credit cards can be loosely categorized as:
The value back offers, rewards and benefits are grouped under each category according to the spend preferences of the respective customers. When choosing your first credit card, always select the one which matches your way of life.
Category-wise credit card choices for new to moderate card users
Best Credit Cards In India 2022
When it comes to credit cards, these are best suited based on one’s needs. We’ve put together a list of best credit cards to help our readers compare and select a card that suits them the most.
After having analysed your own requirements and familiarizing yourself with the wide range of offers, select a card that best aligns with your own income and spend pattern, and the one that offers maximum value at a minimal annual fees, coupled with the most favourable mix of associated charges. You can apply directly with the bank or through a financial services platform.
In a post-Covid world, a lot of the banks are issuing credit cards digitally. You need to fill in a few basic details in the online application form, do your know your customer (KYC) verification, and post a video-KYC conducted by a bank officer, and your application is processed in just a few minutes.
If successful, the credit card will be delivered to your doorstep within a week provided you have a good credit history, some banks do not even ask for any income documents.
To fully enjoy the all-encompassing freedoms of your first credit card, and the accompanying kaleidoscope of choices, following a strict financial regimen is totally non-negotiable.
Raj Khosla is founder and MD of MyMoneyMantra.com. He has three decades of experience in the banking and financial services space where he has worked on creating awareness on financial investments and offered tailored-financial products to Indian customers and small businesses.
Armaan is the India Lead Editor for Forbes Advisor. He has more than a decade’s experience working with media and publishing companies to help them build expert-led content and establish editorial teams. At Forbes Advisor, he is determined to help readers declutter complex financial jargons and do his bit for India’s financial literacy.