Credit card is the first credit/loan product for many of us. It is the first step in building your credit history. Credit cards help with building and improving the credit score if used wisely. Building credit history has become ever more important as all banks are basing their loans on the credit scores. A good credit history can potentially save you a lot money on home loans and car loans. Here are some things you need to know before you apply for your first credit card.
Check your credit score
Get your free annual credit report from CIBIL or one of the other credit bureaus. If you had never taken a loan or credit card, there will be no credit history and so nothing to report. If you had some other loan earlier, you would have that listed along with the repayment history and current status. It also gives you a credit score which is determined by your repayment history. This score will determine your eligibility and the credit limit. Knowing this score upfront will help you in choosing and applying for the right card.
Understand Fees and T&Cs
There are several fees and charges on credit cards and not they could blow a hole in your pocket if not used properly. The most important fees you need to look at are
- Annual Fee: This is the fee bank charges every year for issuing the card. Try to go for a free card with no annual fee for your first credit card. As you build credit history you will be eligible for better cards which come with an annual fee which gets waived if you spend a certain amount on the card every year.
- APR (Annualized Percentage Rate): This is the interest rate the credit card issuer charges on the balance on the card after the payment due date. This is usually very high 30% – 45%. Go for the one with least APR. You should always try to pay up your balance before the due date and avoid the APR.
- Foreign Currency Transaction Fees: This is the fees the card charges for transactions in foreign currency. Usually between 2-5%. If you are a frequent traveller outside the country or make purchases online in foreign currencies then this is something you want to look into.
Rewards and other benefits
Rewards are one of the most appealing things about credit cards. There are a lot of cards which offer very enticing rewards like free movie tickets, Free airport lounge access, cash backs etc. They will not make a huge difference on the first credit card when your spend level is low but as you graduate to more premium cards these will become the differentiating factor based on your spend patterns.
There are 1000+ different credit cards in India and its humanly impossible to compare all of them. But you can use your tool to fins the cards that you are eligible for from the thousands of cards based on your credit and income profile. The 2 most important numbers you should look out for your first credit card are annual fee and credit limit. Choose the card that gives you the highest credit limit with no annual fee. If there are multiple cards then compare their rewards to pick what suits you.