7 Things to Know Before Applying for Your First Credit Card

Getting your first Credit Card is a milestone. Indeed a financial leap as it is your first foray into the world of loans and credits for the first time. It, therefore, requires greater financial discipline on your part.

While you might have been using Debit Cards for a while and must be familiar with the concept of card-based transactions, but Credit Cards work very different from Debit Cards. So, do not just apply for a Credit Card just because your friends have them or because you have been receiving offers for Lifetime Free Credit Cards. Instead, understand the ins and outs of using plastic before applying for one.

Basics of Credit Cards

As this will be your first Credit Card, you must understand a few basic points:

• All Credit Cards come with a pre-approved limit, which is decided by the card-issuing company. While your credit profile helps determine the limit, the final word is as per the credit policy of the card-issuing company.
• Credit Cards can be used to make payments, even if you do not have any money in your bank account.
• Credit Cards work on the principle of revolving credit wherein your credit limit is used when you make a transaction and restored when you make a payment towards the caught up limit.
• These can be used online as well as retail outlets.
• All cards come with an interest-free period of up to 40-50 days. You must settle your bills in full to avail of this facility.
• Each card comes packed with value back offers, rewards & discount offers.
• The way you use your card can have a significant impact on your credit score. They can make or break your credit score.
• Most leading Credit Card issuers in the country offer you international benefits, i.e., you can make transactions in foreign currencies.
• There are various types of Credit Cards to choose from. For instance, different Types of SBI Credit Cards are available according to the customer’s profile.

Things to know before availing your first Credit Card

Now that you are about to start your journey into the world of Credit Cards, there are some essential things that you should know about. Here are the seven most important points that you must know about Credit Cards:

1. High-interest rates:

Well, Credit Cards are amongst the highest interest-bearing form of credit. The APR (Annual Percentage Rate) can go up to 52% in some cases. As a result, any irresponsible use of Credit Cards can push you towards a debt trap. But it does not mean that you should not use Credit Cards. When used smartly, Credit Cards can offer you numerous benefits.

For instance, depending on different Types of Citibank Credit Cards, the interest-free period can vary between 30-50 days. Therefore, by timing your purchases correctly, you can enjoy a credit-free period of up to 50 days along with numerous other benefits. Though, to avail of this benefit, you must pay your entire outstanding dues before the billing due date.

2. Reward Points:

One of the most significant benefits of using Credit Cards is the option to earn reward points. Most Credit Card companies offer bonus reward points on specific transactions or when you spend more than the specified threshold in a year. Air ticket booking, hotel booking, restaurant bills, movie booking, retail shopping are some transactions that help you earn more reward points.

The reward points earned are accumulated in your account. However, you must not forget to check the expiry date. Reward points are redeemable according to the reward program offered by your Credit Card issuer.

3. Waiver of charges:

There are various types of charges, such as joining fees, annual fees, over-limit fees applicable to plastic. But do you know that it is possible to avoid these charges with some very easy tips:

1. Make sure you spend more than the specified threshold to avoid the joining fee and annual fee.
2. Late payment charges can be reversed by placing a simple request with the phone banking officer.
3. Over-limit fees can be avoided by keeping a close watch on your Credit Card statement.

4. Report loss or frauds:

You must provide your regular mobile number at the time of filling the application as you will receive all the notifications here only. As soon as you receive a message regarding a fraudulent transaction or have lost your Credit Card, you must call the customer care department immediately and report the loss. Thereafter, you are absolved of all the liabilities due to fraudulent transactions from thereon.

5. Credit score:

Credit Cards play a major role in determining your CIBIL Score. You must, therefore, use them judiciously, for they have the potential to ruin your credit history. Always pay your bills on time, keep credit utilisation ratio below 30%, and maintain old cards.

6. Do not fall into “minimum due” trap:

The minimum amount due is the amount you must pay to avoid penal charges against your Credit Card dues. It is usually 5% to 10% of the total amount due. You must use this option only when you are unable to settle the Credit Card dues in full. The card balance would be transferred to next month’s statement and add an interest cost every cycle. Therefore, you must try and make as much payment as possible towards your Credit Card dues.

7. Identify your spending pattern:

There are various types of Credit Cards available suitable for different kinds of customers. You must, therefore, understand your spending pattern and lifestyle first and only then pick a Credit Card offering you maximum rewards. For instance, there are different types of SBI, HDFC & Citibank Credit Cards, and you can choose according to your usage patterns.

By exercising financial discipline and using your Credit Card smartly, you can successfully maximise the benefits that are on offer and make your first card experience extremely enjoyable.

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