How to Choose the Right Credit Card05.10.2022
One of the most important life skills we miss out in schools is to have financial literacy. After all, most of our small decisions on a day-to-day basis and some big ones in life are financial in nature. An important one of them is choosing the right credit card. Especially if you have just started earning and are looking to apply for a credit card for the first time to aid your monthly salary.
In this article, we’ll cover different aspects of choosing a credit card — benefits, types, charges, etc. Because we believe, like most financial tools, deciding on a credit card should be tailored to the spending habits and goals of an individual. So, let’s dive into it step-by-step, starting with whether you need a credit card in the first place or not.
Do You Need a Credit Card?
Of course, a person can go about his daily life without a credit card. If you have money, you can make a direct purchase with cash or online. Then why even bother about a credit card? Because a credit card can help you with:
- Financial Emergencies
If you urgently need more than you can afford, you can use your credit card to withdraw cash or make an online payment. The amount would depend upon your credit limit, but it is still quicker and more convenient than asking someone else.
- Building Credit
When you apply for a loan in a bank, your credit score is a critical factor in its disbursement — the higher, the better. Using a credit card responsibly, i.e., clearing the bills on time, avoiding maxing out your credit limit, helps increase your credit score.
- Rewards and Discounts
Most credit cards have tie-ups with various merchants across industries — hospitality, fashion, retail, sports events, etc. It enables them to offer cashback or discounts when you transact with them using credit cards. Some also come with attractive rewards like air miles.
These are some major benefits of owning a credit card. If these sound beneficial to you, then yes, you should look into getting a credit card. So, now let’s see what credit card options you have to pick from.
What are the Different Types of Credit Cards?
The usage of all the credit cards is similar: You can make transactions using the credit card up to the credit limit, pay the bill at the end of the month, or interests accrue. But, credit cards differ in catering different types of goals a user can have.
Some of the popular types of credit cards are:
- Air Miles Credit Cards
The cardholder can accumulate points (referred to as travel points or frequent flyer miles) based on their credit card transactions which can be redeemed for discounts (or free) flight tickets. Some also give access to an airport lounge.
- Cashback Credit Cards
It repays card users a percentage of their purchases (with the credit card) in cash. Please note that the amount of cashback depends on the issuing bank, the merchant, types of purchase, range of expenses, etc.
- Balance Transfer Credit Cards
In simple terms, a balance transfer credit card enables a cardholder to switch their debt between credit cards with different interest rates. This way, one can use a credit card with attractive benefits and repay the debt at a lower rate by offering a credit card.
- Free For Life Credit Cards
Annual membership, maintenance charges, etc. are some fees that come inevitably with most credit cards. But, there are Free for Life Credit Cards (also known as life credit cards or lifetime free credit cards) that come with no such charges while still offering attractive benefits.
There are other types of credit cards like Golf Credit Cards, Cinema Offers Credit Cards, Travel Credit Cards, Shariah Compliant Credit Card, etc. Some of them might offer ticket discounts to popular events like FIFA, while others come with offers like “Buy One Get One” with selected merchants. As you have ample options to choose from, so it’s advisable to research the best credit card type depending on your requirements.
How to Select the Best Credit Card Among Similar Types?
Let’s say you zero in on a credit card type as per your needs or goals. The next step would be comparing the credit cards offering similar features. Below is what to consider:
Credit Score and Documentation
When you apply for a new credit card, the card-issuing bank inquires about your credit report to determine your creditworthiness. So, do check your credit score before applying. In addition, go through their documents requirements, or check if they want you to open a bank account as well to check your eligibility.
Annual Fee and Maintenance Charges
Some cards charge a fee each year on card usage, along with other maintenance fees, every once in a while. Plus, there is an APR (Annual Percentage Rate), the charges of using a card if you miss paying the whole balance of each month. Compare these charges and hidden ones between all your options.
Interest Rates and Minimum Repayment
At each monthly billing cycle, a credit card gives you the option to pay the full amount, a minimum amount, and an amount in between. Repaying any other amount than the full one will add interest to the remaining balance. This interest rate varies depending on the bank.
Some banks also have an introductory interest rate where you start paying low or no interest, which then increases after a certain time. While others offer zero interest installment schemes.
Cashback and Loyalty Points
Depending on how much you spend, you can get money refunded to your card or get special discounts offered to a certain cardholder. However, you should verify if there require any conditions like a minimum purchase, monthly bill clearing, etc., to avail such offers.
Along a similar line of benefits, some credit cards give points on each transaction, which can be spent to buy any goods.
Other things to consider when comparing and deciding on a certain type of credit card:
- Whether the bank offers a supplementary card or an online purchase card
- In case you want to do international transactions, check out the oversees usage rates
- Option of add-on cover like credit shield insurance
- Read the fine prints or implore your credit card agent to learn about important terms and conditions
Over to You
There you go with all the things you need to know to choose the right credit card for you. In short, first you have to be sure that you actually need a credit card and can afford one. Secondly, familiarize yourself with all the types of credit cards, pick a type that meets your needs, and then compare among all the credit card providers to finalize one. Please note that once you apply for a credit card, it is up to the issuing bank or institute to decide whether you’ll get it or not. You can contact a credit card provider to learn more about credit card types and offers that suit you best.