Choosing the Right Credit Card

Whether you walk in a super store, or checking your email, you would surely be flooded with offers for new cards. It's easy to apply for a credit card simply because the offer looks good, but have you really stopped to think about whether that's the right card for you. You can save hundreds, and maybe even thousands, of rupees by shopping around for a credit card.

Before applying for a credit card, find answers to a few important questions. The answers to most of these questions can be found in the disclosure included with the credit card application, which I agree is itself a task to read through.

What Type of card is it?

There are many different types of credit cards to choose from: Regular credit cards, rewards credit cards, loyalty cards, petro cards, to name a few. Understand what kind of card you’re applying for and whether you really need it before filling out the application.

How are you going to use the credit card?

If you are the one who pays the full balance timely then you could go for a card which may have interest charged at the end of grace period.  If you intend to use your card for balance transfers ? You should then look for a card with a low interest rate on balance transfers. If you plan to carry a balance from one month to the next, then a credit card with a low interest rate is ideal. If you shop mostly from a specific store then you could go for a loyalty card specific to that store. This helps you to accumulate the loyalty points which could be redeemed later.

How long is the grace period?

The grace period is the amount of time you get to pay your balance in full before a finance charge is added. The period is usually expressed in days from the billing date, example :  “28 days from the billing date”. Longer grace periods are better because they give you more time to pay your bill without incurring a cost for the convenience of using credit. However If you already have a balance on the credit card, new purchases may not have a grace period.

What are the fees?

You should enquire about the fees and the circumstances under which the fees are applied. The most common types of fees include: annual fee, late fee, and over-the-limit fee. There may also be additional fees for paying your account over the phone on the due date, requesting additional copies of your statement, or for having your check returned. Most people don’t check these and later pay money for using these features. Its better to check for them before applying for the card.

How is the finance charge calculated?

The credit card company’s method of calculating the finance charge has an impact on the amount of the charge. Some methods consider only the current month’s balance while others consider the current and previous months’ balances. New purchases may or may not be included in the calculation. This needs to be checked before you apply for the card. This is especially important for those who tend to over spend and then pay in installments.

What is the credit limit?

The credit limit influences your purchasing power. If you are the one who tend to overspend, then start with a low credit limit. This helps you in keeping a tab on your spending which in turn helps in preventing default and a hit on your credit score.

What are the rewards?

Some credit cards offer rewards for using your credit card. Make sure you fully understand the reward structure and the amount of purchases you have to make to receive the reward. Also please check for the validity period of the reward points. This is important so that you could use the reward points before they lapse.