If you believe a credit card is just one more payment tool, you could be incorrect. Smart and disciplined credit card usage could support you save more on your spends and enrich your life-style experiences totally free of expense if you hold clearing your dues in complete on time to steer clear of interest charges (usually ranging in between 3% and 4% per month) and if you do not have to spend any membership charge for the card.
That getting stated, deciding upon a credit card whose rewards are aligned with your exceptional spending patterns and spending budget is important to maximising the worth of your card spends. So, if you are preparing to get a credit card, right here are a couple of crucial points to hold in thoughts although comparing your solutions.
1. Eligibility
Most banks in the nation have numerous credit card variants to provide. However, you may well not be eligible for all the credit cards out there. Some card variants have steep revenue and credit score specifications. The point getting, you need to constantly search and examine credit cards according to your eligibility and steer clear of applying for cards you are ineligible for to minimise the possibilities of application rejection and an unnecessary dip in your credit score due to the fact of the challenging inquiries in the procedure.
2. Alignment of card rewards with your spending patterns
Furthermore, not all the credit cards you are eligible for would be finest suited to your specifications. Credit cards come with unique forms of core rewards like cashback, reward points, air miles, and so on. nevertheless, you need to ideally choose a card whose rewards are aligned with your spending patterns. For instance, if you do not personal a vehicle and program to use your card primarily for on the net purchasing, you need to pick a card that presents further cashback or reward points on on the net purchasing and not fuel refills!
Alignment of core card rewards with frequent spending categories is crucial to maximise the rewards. You need to also study the fine print to get full clarity about the advantage riders like capping on cashback, reward points redemption solutions and conversion prices, and so on. and attempt to evaluate the actual worth proposition of its rewards to additional fine-tune your choice.
3. Budget
Now assume you have shortlisted a couple of cards based on your preferred spending categories – but how do you figure out which one operates finest for you? You need to choose the selection that makes it possible for you to maximise the card rewards although staying inside your month-to-month spending budget for card spends. For instance, if your month-to-month card spending spending budget is Rs 20,000, you need to go for a variant that presents, say, a 10% cashback for eligible spends up to Rs 20,000. This could effortlessly support you save Rs 2,000 per month (or Rs 24,000 in a year) on your spending.
If one more card presents the very same rewards, but the spending requirement threshold is larger at Rs 40,000, your spending budget will not enable you to maximise the card rewards. The point getting, you should in no way breach your spending budget for card spends to maximise the rewards to make certain you are capable to effortlessly clear your total outstanding inside the interest-totally free period each and every billing cycle.
4. Credit limit
Banks figure out the credit limit linked to a credit card account based on the applicant’s revenue and credit score amongst other considerations. Meaning, unique banks may well provide you unique credit limits linked to credit cards as per your revenue and credit score. But you may well want to go for a card variant that has a higher credit limit. This would support you to hold your credit utilization ratio way under the 30% mark that bodes exceptionally properly with a excellent credit score.
Do note, nevertheless, a higher credit limit does not imply a license to commit beyond your spending budget. It just provides you a bit more leeway if you have an urgent huge-ticket spending requirement, it safeguards your credit score and also boosts your eligibility to apply for premium credit card variants in the future.
5. Annual costs
While there’s no dearth of zero annual charge credit cards in the market place, at instances these are only the standard variants with restricted rewards. So, if you are hunting for a premium credit card with enhanced rewards, you could take into account going for a variant whose annual charge does not influence your spending budget and, more importantly, when the usage rewards exceed the membership charges. Furthermore, lots of annual charge-charging credit cards also come with annual spending targets – if your spending budget makes it possible for you to meet these targets, your annual charge would automatically get waived off throughout renewal.
6. Additional perks, privileges and facilities
Most credit cards also come with perks, privileges and facilities in addition to the core rewards like cashback and reward points, and you need to pick a card whose added rewards you like the most. These added rewards could be complimentary travel insurance coverage, totally free lounge accesses, joining gifts, the selection to take a loan against your credit card, straightforward EMI facilities, unique discounts or promotional presents when you shop for specific brands or from distinct e-commerce internet sites, unique offers on hotel bookings and at chosen restaurants, and so on. based on the card variant. These desirable perks could additional sweeten your encounter of making use of a credit card. So, do not ignore them.
In conclusion, it may well be a bit complicated to locate a credit card that ticks all these boxes at the very same time – nevertheless, a card that largely incentivises your prominent spending categories although staying inside your spending budget and presents a wide array of valuable perks and privileges could be excellent sufficient also. But regardless of the card variant you finish up deciding upon, make certain you commit intelligently and remain inside your indicates to effortlessly steer clear of the interest charges and an adversely-impacted credit score.
(The writer is Co-founder and CEO, BankBazaar.com)