Credit Cards have become a necessity for many urban Indians today. Knowing how to apply for a credit card and finding the right one can help you get a card with lower interest rates and higher rewards/savings on daily purchases.
From being a handy tool for large payments to giving you peace of mind for all kinds of payment needs, credit cards are more popular now than ever before. Almost every major bank issues credit cards of various kinds carrying various offers. In this article, we cover how to apply for a credit card and the different benefits that can be availed with it.
Before you apply for a credit card:
Check Your Credit Score
A lot of people do not completely understand the importance of one’s credit score. Every customer has a credit score that credit card companies check to make sure customers are creditworthy. Banks check for previous repayment history, Credit vs Salary ratio, Credit used vs Credit available ratio among other things to check customer’s creditworthiness. Learn how to check your CIBIL score for free.
Track your Monthly Expenditure
Tracking where your money goes plays an important role in deciding which kind of credit card you need. It is necessary to analyze your spending habits to not only keep a tab on your financial situation but also to find out where you can make some savings. Therefore, you should track your expenses for 3 to 4 months to arrive at an approximate estimate of your spending habits.
If you spend more than you earn, then you should not apply for a credit card. To enjoy the benefits of a credit card, you should be able to pay your credit card bills in full every month.
Hence, tracking your monthly expenses and arriving at an approximate budget is important to inculcate a financial discipline. Only when you can manage your money without having to borrow from someone, you should think of applying for a credit card.
You can make use of simple excel sheets to record your expenses in different categories such as utility bills, food, fuel, shopping, gifts etc. Once you arrive at some figures, you can make use of FinTown’s free credit card tool to figure out the best credit card for you.
Find a credit card that suits your needs:
Since every credit card is targeted at a specific group, it is important to identify what your needs are. A woman who loves shopping needs a different credit card than a frequent traveller who wants discounts on flight tickets or access to airport lounges. Similarly, if you prefer to earn more rewards over getting a cash back, then you should be able to list that out. Furthermore, you might have to choose between dining discounts or movie discounts on your card. Moreover, it could be a choice between taking a credit card that offers discounts or cash back on grocery over fuel.
Once you are able to figure out your requirements, it becomes much easier to look for a credit card that satisfies your needs.
Things you must not ignore about a credit card
Annual Percentage Rate(APR)
It is very important for you to not overlook interest rates while applying for a credit card. If you have a credit card with high-interest rates and you are not able to make payments in full every month, you might have to pay high-interest rates. Therefore, it is good to be aware of APR of your credit cards.In the Indian market, credit cards can be categorized into 3 types:
- Low-interest rate credit cards which have an APR below 30%.
- Moderate interest rate credit cards which have an APR ranging between 30% to 40%.
- High-interest credit cards which has an APR above 40%.
Annual Fee and Joining Fee
The Annual Membership Fee is what you pay every year to retain the card with you. The joining fee, however, is a one time fee that you pay in the first year. Depending on your income and financial situation, you will have to decide which credit card is the best for you. For a person with a low income, it is important to take a card with a low joining fee and annual fee.
Although most basic cards come with a low Annual Fee, it is not the case when you want a premium card to meet your luxury needs. To get a wide range of services, you need to pay slightly more. Thus, Annual Fee is one of the important things to consider while choosing a credit card.
While some credit cards might offer a range of exciting offers like introductory bonus points, BookMyShow vouchers or Miles, others might not. So, it might be helpful for you to analyze welcome benefits before you zero in on a credit card.
Credit cards offer different rewards rate. If your priority is earning more rewards, then you should choose a credit card that offers you a better rewards rate. Most of the times, it is important to reach some milestone spends to be eligible for rewards or cash back. Therefore, you should be clear about the spend amount that would make you eligible for getting a reward or cash back.
For example, you can choose the Standard Chartered Platinum Rewards Card has a very high rewards rate, with a minimal annual fee.
Research on Customer Satisfaction
Some websites like “mouthshut” and “consumeraffairs” can provide you with details of everything that could go wrong with your credit card. However, it must be noted that these websites are complaint forum. A bad review by a customer does not inherently mean that the credit card is bad.
According to a study conducted by the Indian Customer Satisfaction Index, HSBC tops the list of 12 large banks in India with a customer satisfaction score of 76, with Standard Chartered and Citibank close on its heels at 74 and 73 respectively.
Minimum Credit score for Credit Card
There is no minimum credit score for credit cards as such mandated by banks. However, those who have a CIBIL score above 750 are highly likely to qualify for most credit card offers. Those with scores below 650 are unlikely to qualify for most credit cards.
Are You Eligible For A Credit Card?
Some of the basic requirements outside credit score are:
- Age: Most banks require credit card applicants to be at least of 18 to 21 years of age to apply for a credit card.
- Salaried job / Self-employment with income proof: Having a salaried job is mandatory for many credit cards. Self-employed people can get access to many credit cards provided they furnish satisfactory income proof.
- Minimum Salary: Many credit cards have a minimum salary requirement. HDFC for example, asks for a minimum salary amount of INR 2 lakhs per annum to be eligible to apply for a credit card.
Which bank to choose?
The first step to apply for a credit card is to check if the bank you’re associated with provides credit cards. Most banks offer pre-approved credit cards on salary accounts. One can check on their bank’s home page to see if you have a pre-approved credit card. This should be a great start point.
Keep in mind that different banking companies provide different interest rates and reward offers. It’s your choice to thoroughly read the terms and conditions and pick the offer that’s best for you. This could be based on your earnings, spending patterns, ability to pay on time etc.
How To Apply For A Credit Card?
Once you’ve made a choice on the credit card offer you like, you’re ready to start filling out the credit card application form. This procedure is fairly standard and shouldn’t take too long.
- Your personal information: Name, address proof, contact, identity proof, PAN and other standard documents.
- Employment status: Salaried employee or self-employed.
- Employer details: Name of company.
- Salary / Income: The biggest factor in deciding the status of a credit card application is salary/income. This allows the bank to confirm your eligibility (more on this below).
- Credit history: Enter the details of your previously owned credit cards or bank loans. This will allow the bank to review your credit history and conduct a risk assessment.
- Offer choice: Select the credit card you want to opt for.
Healthy credit card usage
A purchase with a credit card is basically equivalent to a short-term loan. If you pay your bill in full every month, you will not need to pay any interest. Interest gets charged on the balance if the amount is not paid back in full before the due date. It is extremely important to go through the terms and conditions regarding interest rates and due dates before applying for a credit card. A healthy credit card habit is to pay back your full due amount prior to due date every period.