Selecting your first credit card may seem like a daunting task for someone without any experience in handling credit. Moreover, with hundreds of card options to choose from, finding the best one to start your credit journey can be confusing as well. Though, if chosen and managed well, credit cards can help you save considerably on your expenses and build a strong credit profile over time.
Before you explore the available card options and make your final choice, it’s important to understand how credit cards function. Unlike a debit card, where the amount you spend is directly deducted from your bank account, every credit card comes with a fixed credit limit. This is the maximum amount you can borrow when using the card for payments. The amount you borrow is reflected in your card statement, which you must repay every month by the due date. This period, between the statement date and the payment due date, is known as the grace period. If you don’t pay the total amount due within this period, you’ll be charged with an interest on the unpaid balance. Moreover, usually, no interest-free grace period is provided on any subsequent card spends if your previous card dues are not paid in full.
Once you get a basic idea about how credit cards work, you can explore the card options available to you. As a beginner with no credit history, you may be offered only a select few entry-level cards, which generally have basic features, low-income eligibility requirements, and a low annual fee.
Consider the following factors while choosing your card:
- Analyse Your Expenses
Before diving into the card benefits and deciding which one would be the best fit for you, you need to understand your own spending habits. Start by analyzing your past spending patterns to determine which categories you spend the most on and which types of purchases you make most frequently. These can include online shopping, travel, utilities, fuel, food, or other expenses depending on your lifestyle.
- Check Your Eligibility
Every card comes with its eligibility criteria that include age, nationality, occupation, and minimum income required, among other internal policies as set by the card provider. So, you must first check which credit cards you are eligible for based on the set parameters to narrow down the card options available to you.
- Compare Card Features and Benefits
Once you have analysed your spending habits, you can move on to the features and benefits offered by the cards you are eligible for. You can pick a card with the best value-back on the categories you frequently spend on and whose features best align with your lifestyle and spending needs. For example, if you commute daily with your vehicle and spend a considerable amount on fuel, then get a fuel credit card with accelerated benefits on your preferred fuel provider, like HPCL, IndianOil, or BPCL.
- Rewards Structure
Besides the accelerated rewards earning categories, you should also compare the cards based on the types of rewards they provide. Some cards may offer reward points, brand loyalty points, or even cashback on your spends, which you can choose as per your preference.
It’s also important to consider the redemption value of each reward point as even if two cards let you earn the same number of reward points, the final value-back may vary depending on the redemption value of each point. For instance, 1 reward point may be equal to Rs. 1 for one card, but only Rs. 0.25 for another. Similarly, you should also analyse which card will help you maximise your savings with the available redemption options, which might include redemption against statement credit, rewards catalogue, air miles conversion, etc.
- Card Annual Fee
Generally, entry-level credit cards are either lifetime-free or have a low annual fee. But you can still consider this factor while comparing the cards based on how much annual fee you are ready to pay for the benefits offered. Some cards also come with a spend-based annual fee waiver condition, which you can check to analyse whether you can satisfy that condition to avail the fee waiver.
Merely selecting a credit card that best suits your needs is not enough, using the card responsibly is equally important. Given below are some of the tips you can follow to avoid any card misuse and to build a good credit profile:
- Spend Within Your Means
Even if you have a high credit limit, it’s important to stick to a budget and only spend what you can afford to pay off later. It is advisable to spend within your means and to maximise your credit limit only in cases of financial emergencies. This will help you avoid overspending, which can lead to difficulty in paying your monthly dues on time, thus affecting your credit score negatively as you might appear credit hungry and an irresponsible borrower.
- Make Timely Repayments
Credit cardholders should make an effort to repay the amount due as stated in their card statement by the due date. If you struggle to keep track of the dates and bills, then you can set up automatic bill payments. Missing any repayment can result in incurring high interest charges which further increases the outstanding balance and puts you at risk of falling into debt.
Also Read: The hidden costs of paying only the minimum on your credit card
- Avoid Cash Advances
Though the credit card cash withdrawal service is available for all, it should be avoided as such cash advances incur high charges. You are charged with a one-time withdrawal fee, which is usually a percentage of the amount withdrawn and a high interest rate, which is applicable from the date of withdrawal itself without any grace period.
Getting your first credit card is a major step in establishing your credit profile and increasing your savings. However, it is a profitable venture only if you understand the basics of how credit cards work, choose your card wisely and use it responsibly. The key is to pick a card that best aligns with your needs and use it as a tool to boost your savings instead of treating it as an extension of your income.
