Your guide to choosing the right credit card

In India, most banks now offer credit cards to their customers and choosing the right credit card can be tricky. While the card network is typically MasterCard or VISA, which are widely accepted across the country, there’s also American Express – which offers credit cards and charge cards although acceptability is lower. Yet another is Diners Club credit card.

A credit card is like a double-edged sword – on the one hand, it is useful during emergencies and also comes with several rewards and benefits and on the other, if you’re not careful, it can also send you spiralling into financial disaster.

So, should you even think of getting a credit card, and if yes, then which one? Here are 5 factors to consider:

1. Interest rate, service charges and fees

Interest rate, service charges and fees vary across banks and cards. The interest rate on a credit card is so high that it is quoted monthly. Presently, it is usually around 30-45% per year depending on which type of credit card you have. Some premium cards also have a joining fee in addition to annual fee.

If you intend to pay off the bill in full each month, the interest rate shouldn’t matter to you. Get a card with no annual/joining fee and lower service charges, or even a charge card (not very well known in India). Charge cards are no-limit cards which offer a better points conversion ratio, attractive benefits and rewards. The main differences between a charge card and a credit card are – a) there is no credit limit and b) there is no revolving credit in a charge card. You get the bill, you pay in full by the due date. Simple.

2. Credit limit

The maximum amount upto which can you can spend on the card, and largely depends on your income, any previous credit history, and the type of card (Classic/Silver/Gold/Platinum etc). With prolonged use and a good track record, banks often offer an increase in limit every 2-3 years at their discretion. If you’re sure that you’re not going to overspend or exceed your credit limit, then look for a card that offers a generous limit. This way you don’t need to keep multiple credit cards, and the additional limit can be useful in case of any emergencies.

3. Rewards and benefits

Credit card companies offer various forms of incentives to customers; these could be in the form of discounts, cashbacks, greater number of reward points. If you’re a frequent shopper, a cashback card might make more sense for you. However, do read the fine print – there are often restrictions on such cards, from which site/shop the cashback/discount is applicable on, to the maximum amount that can be claimed per transaction. Likewise, for redemption of points, the options may be unfavourable, and the points may also have an expiry date.

4. Co-branding

Co-branded credit cards have been around for some time now, and most issuers have tie-ups with popular merchants. There are several types of such cards – from oil / fuel companies and travel sites to stores/shops, airlines and others.

While the offers are tempting, there is always a possibility of change in benefits and in a worst-case scenario, the merchant may shut down, or the partnership with the card issuer may end, so get a co-branded card only if using it at/with that merchant outweighs the benefits of using any other card.

5. Your attitude towards debt

Now that we’ve ticked off the more common aspects, the most important point to consider is your persona – are you prone to impulsive purchases and whipping out that credit card to pay? Or do you look up multiple options to compare prices, think long and hard, and then finally decide to buy something, preferably via Netbanking/Debit Card/COD?

Are you comfortable having multiple credit cards with outstanding amounts and high interest charges to pay each month? Or does the very thought of being in debt send shivers down your spine?

Keep the above in mind, decide wisely, and then go get the right credit card of your choice! 😀