5 Mistakes to Avoid When Getting a New Credit Card
Applying for a new Credit Card is now easier than ever before. All it takes is a few minutes of your time, and within a few days, or in some cases even a few minutes, you get to know whether you are eligible for the same. If you are, voila! Your Credit Card will reach you within a few days. If this isn’t convenience at its best, we don’t know what is. The ulterior motive of the Credit Card companies is to prompt you to apply for and use as many Credit Cards as you possibly can. However, if you really wish to make the most of your card, we suggest you steer clear from the below-mentioned mistakes, which are made by a vast majority of people while seeking a new card.
Getting an Unsuitable Credit card
When you are faced with an opportunity to Get a Credit Card, it might be quite easy to get tempted with almost any card on the market, considering the additional financial freedom that the card will inherently offer. However, you need to look beyond this one benefit and zero-in on a card that proves to be the most advantageous for your particular situation. For instance, if you are the primary breadwinner of the family, it will prove to be in your interest to get a card which offers benefits on grocery shopping, utility bills, retail brands, online shopping and fuel charges. In this case, getting a travel-related Credit Card which gives you free miles won’t serve much purpose for you, and will keep you from enjoying the perks of spending via your card.
Then again, compare the cards which offer similar benefits, and choose the one which seems to be the most beneficial for you.
Getting a Card With High Annual Fee
While looking at the benefits of the card, sometimes, it may feel that the high annual fee is justified. However, the key here is to understand, how frequently you would be using the card. Of course, you shouldn’t simply use the card more often to make the most of it, as it may lead you to spend beyond your Credit Utilisation Ratio (CUR), and in some cases, even beyond your ability to repay.
Besides, you must also see whether or not the benefits will outweigh the price. Only if the answer is in affirmative should you go ahead with procuring this credit! It is best to go with a zero or extremely low annual fee, that doesn’t go beyond a few hundred rupees.
It is also essential for you to choose a card with a comparatively low Annual Percentage Rate (APR) so that you don’t end up paying vast sums of money in case of delayed payment.
Ignoring the Disadvantages of the Balance Transfer Facility
The balance transfer facility on Credit Card is essentially an alternative which lets you repay your pending bills at low or in some cases at no interest rate, for a year. While this seems to be a brilliant opportunity to enjoy interest-free credit, it might encourage you to make more purchases that you need to, thus leaving you debt-ridden.
Hence, it is highly advisable that you know and understand the terms and conditions of the card that you want. You must also weigh the pros and cons of the balance transfer facility. We strongly advise you to pick a card with such benefits if you have the requisite amount of financial discipline to use your card judiciously.
Ignoring Your Future Goals
Getting a new Credit Card usually has a direct impact on your credit history. In most cases, this leads to a decline in your credit score, by up to 10%. The drop is often higher if your repayment history wasn’t good to start with. If you are eyeing a substantial loan in the near future such as a car loan or a Home Loan, it may be best to avoid getting a new card for a few months. If however, it is necessary for you to obtain the card right away, you should use it for a few months, pay all your bills in full, and on time, and then apply for a new loan. It is essential that you keep in mind your future goals as well as your existing credit history when you get a Credit Card. Ignoring this crucial aspect might have some serious repercussions such as rejection of your car loan application, or a higher interest rate on your Home Loan.
Closing an Existing Card
As is the case with getting a new card, closing an existing one can also lead to a dip in your credit rating. Credit length plays a vital role in your credit score, and hence you must avoid closing a card instead of getting a new one. If you want a new card, find a way out of keeping your existing one as well. If not, then only choose to close a card, which has been with you for the most extended period of time.
We hope that you are now aware of some of the common mistakes that you may unknowingly make when you get a Credit Card for the first time, or are merely looking to add another one to your wallet. Either way, we advise you opt for a card that offers the most relatable benefits for you, comes at a low annual fee, levies minimum possible APR and helps you stick to your future goals!!
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