Table of Contents
Introduction
Credit cards have become a ubiquitous part of modern life. They offer convenience, flexibility, and numerous benefits, from cashback rewards to travel miles. In India, credit cards are widely used, and their popularity continues to grow. However, for those who are new to the world of credit cards, the process of choosing one can be daunting. In this beginner’s guide to credit cards in India, we will explore how credit cards work, what to look for when choosing one, and how to use them responsibly.
How do credit cards work?
A credit card is a type of payment card that enables the cardholder to obtain funds from a financial institution, which they can use to pay for goods and services. The cardholder can then repay the borrowed amount over time, usually with interest. The amount that can be borrowed depends on the card’s credit limit, which is determined by the card issuer based on the applicant’s creditworthiness.
When a cardholder makes a purchase using a credit card, the amount is charged to the card and added to the outstanding balance. The cardholder must then make a minimum payment each month, typically 5% to 10% of the outstanding balance, to avoid late payment fees and other penalties. If the cardholder does not pay the outstanding balance in full, interest is charged on the remaining balance, which can quickly accumulate if left unpaid.
What to look for when choosing a credit card?
Choosing the right credit card can be overwhelming, as there are many factors to consider. Here are some of the key factors to look for when choosing a credit card in India:
1. Interest rates: The interest rate, also known as the Annual Percentage Rate (APR), is the rate at which interest is charged on the outstanding balance. Credit cards in India typically have high interest rates, ranging from 18% to 42% per annum. It is essential to compare interest rates across different credit cards to find the best deal.
2. Fees and charges: Credit cards often come with various fees and charges, such as annual fees, late payment fees, over-limit fees, cash advance fees, and foreign transaction fees. It is important to understand these fees and charges and factor them into your decision.
3. Rewards programs: Many credit cards in India offer rewards programs that provide benefits such as cashback, reward points, discounts, and other perks. It is important to consider the rewards program offered by each card and choose one that matches your spending habits and preferences.
4. Credit limit: The credit limit is the maximum amount that can be borrowed on the credit card. It is essential to choose a credit limit that matches your spending habits and financial situation.
5. Credit score: A good credit score is essential for obtaining a credit card in India. It is important to check your credit score before applying for a credit card and choose a card that matches your credit score and credit history.
6. Card issuer: It is important to choose a reputable card issuer that offers excellent customer service and support
How to use credit cards responsibly?
While credit cards can offer many benefits, they can also lead to debt if not used responsibly. Here are some tips for using credit cards responsibly in India:
1. Make payments on time: It is essential to make payments on time each month to avoid late payment fees and other penalties. Enabling automatic payments can be a useful way to guarantee timely payments.
2. Pay more than the minimum amount due: Paying more than the minimum amount due can help reduce the outstanding balance and save money on interest charges.
3. Avoid cash advances: Cash advances often come with high fees and interest rates, making them an expensive way to borrow money.
4. Use credit cards for planned expenses: It is important to use credit cards for planned expenses that can be repaid over time, such as a large purchase or a vacation. Avoid using credit cards for impulse purchases or expenses that cannot be repaid in a reasonable amount of time.
5. Monitor your spending: It is important to keep track of your spending and stay within your budget. Many credit card issuers offer online tools and mobile apps to help you monitor your spending.
6. Avoid carrying a balance: Carrying a balance on your credit card can lead to high interest charges and debt. It is best to pay off the outstanding balance in full each month.
Types of Credit Cards in India
There are several types of credit cards available in India, each designed to meet specific needs and requirements. Here are some of the most common types of credit cards in India:
- Rewards Credit Cards – These credit cards offer rewards points for every transaction made using the card. These rewards points can be redeemed for various benefits, such as cashback, discounts, and vouchers.
- Travel Credit Cards – These credit cards are designed for frequent travellers and offer benefits such as air miles, lounge access, and travel insurance.
- Cashback Credit Cards – These credit cards offer a percentage of the transaction amount as cashback. The cashback is usually credited to the cardholder’s account at the end of the billing cycle.
- Fuel Credit Cards – These credit cards are designed for those who frequently use their vehicles for commuting. They offer benefits such as cashback and discounts on fuel purchases.
- Business Credit Cards – These credit cards are designed for business owners and offer benefits such as expense tracking, cash flow management, and business-related rewards.
- Lifestyle Credit Cards – These credit cards offer benefits related to lifestyle, such as dining discounts, movie tickets, and shopping vouchers.
Top Credit Cards in India
Here are some of the top credit cards in India, based on their features, benefits, and popularity:
- HDFC Bank Regalia Credit Card – This credit card offers benefits such as lounge access, air miles, and reward points for every transaction. This card is available with an annual fee for Rs. 2,500.
- ICICI Bank Amazon Pay Credit Card – This credit card offers benefits such as cashback on Amazon purchases, reward points for other transactions, and no annual fee.
- SBI Simply CLICK Credit Card – This credit card offers benefits such as reward points for online shopping, dining, and utility bill payments. This card is available with an annual fee for Rs. 499.
- Axis Bank Buzz Credit Card – This credit card offers benefits such as cashback on online shopping from select merchants, reward points for other transactions, and no annual fee.
- American Express Membership Rewards Credit Card – This credit card offers benefits such as reward points for every transaction, discounts on dining and shopping, and no annual fee for the first year.
Conclusion
When utilized responsibly, credit cards can serve as a valuable financial instrument. By understanding how credit cards work, what to look for when choosing one, and how to use them responsibly, you can make informed decisions and avoid financial pitfalls. Remember to compare interest rates, fees, and rewards programs, choose a credit limit that matches your spending habits, and use credit cards for planned expenses that can be repaid over time. By following these tips, you can make the most of your credit card and achieve your financial goals.