Getting your first credit card is a milestone achievement. You may remember how you felt when you got your first card.
The first question which you might ask is “Should I really care about credit cards?” And the answer is yes. As all of us spend money. It’s the most convenient way to make payment and earn rewards at the same time. And if you use it the right way, you can enjoy an interest-free credit period of 30 to 45 days. So, all of us can benefit.
But you will agree with us when we say that credit cards are complex. It takes some effort to understand whether they are a good thing or not.
In this post, we will tell you how you can minimize the fees and interest while maximizing its benefits.
Have you ever got rejected on your application? Do you know how to improve your chances of getting a card or how to maximize the rewards?
We have come up with such 5 super important things you must know about credit cards.
1. By doing this, never get a rejection on credit card applications
Here is how to improve your chances of getting a card.
Create a Fixed Deposit with the bank whose credit card you desire.
And this will greatly improve your chance of getting one. This hack is for people with no or low credit score. You will have to deposit an amount greater than your desired credit limit.
Note – You should remember that falling behind on payments could result in losing the deposit. However, if you are a responsible user and will make timely payments then you should not worry about this. Moreover, it will build your credit score.
2. Be aware, NEVER withdraw cash from your credit card.
You should consider this as the most important rule of using credit cards. Never ever use your credit card for withdrawing cash.
If you withdraw cash then you will have to pay a very high rate of interest. The interest rate charged on credit cards can be as high as 40% per annum. Yes, 40% or even higher.
In case of emergencies, use your emergency funds. If you don’t have one, then ask your friends and family but do not withdraw cash from your credit card.
3. How to avoid fees and interest.
You might be surprised by the fact that most companies waive the first-year annual fees.
Furthermore, for some cards, if you send more than a specified amount within a time period, you can avoid fees for the subsequent years as well.
Pay on time to avoid late fees. And if you do not transact internationally, then you can completely avoid foreign transaction fees.
Interest is charged on the outstanding dues along with the late fees. It is avoidable too. You do not have to pay a single rupee of interest if you pay your credit card bill in full every month.
Interest on new purchases will not be charged until the next due date. So, pay the next month’s bill in full and again no interest will be charged.
Maintain this cycle, and you will avail all the benefits without having to pay any extra charge.
4. Credit cards can build or destroy your credit score
One of the main objectives of having a credit card is to build your credit score. However, if you are not careful enough, you can destroy your creditworthiness. It entirely depends on how you use it.
You may want to know how this works? Well here is the mechanics of credit cards and credit score:
Every month, the card companies/ banks send information related to all your credit activities (i.e. Credit card/ loans etc.) to the credit bureau. The credit bureau compiles all these activities into a report and calculates your score. The report has the timing of payments and the amount used.
Late payments and using the entire limit amount is considered bad and will destroy your credit score.
Another way you can destroy your credit score is by applying for multiple credit cards at once. As all credit cards companies will ping the credit bureau for your score and your credit score will take a hit.
Pro Tip: To ensure that you do not damage your credit, pay on time and in full. And never max out your card.
5. How to maximize the rewards you get from spending?
So, it is very important to choose your credit card wisely as you will only receive reward points for selected spending.
- If you are shopping online or offline, then you must pay via a cashback card.
- ICICI Amazon pay is one such card. It gives 1%-5% cashback in Amazon Pay wallet, with no joining fees.
- Similarly, if you are making a travel booking, then you must use a travel card especially. Here the cashback card will not maximize your benefits.
- American Express Platinum Travelcard is the best travel credit card. Users get ~7% rewards, and the first-year annual fees are waived but for a limited time.
- Moreover, if you frequently go out for movies and dining experiences, then lifestyle cards are the best option.
- HDFC Diners Club Miles is the best lifestyle card which provides 1.3%-13% rewards to its users. And the first-year fees are waived.
Nowadays, banks have partnered with numerous businesses and you can find various offers that suit your needs perfectly. You might need multiple cards to maximize your rewards points.
This is how credit card spending trumps. These rewards are only available for spending through credit cards that too with the partner providers.
Note – Please be aware that banks and card companies encourage spending. So, if you have a tendency to exceed your budget then refrain from using cards excessively.
We hope that this clears up any doubts you may have. And you might already know some of these things but it is always a good idea to remind yourself about the goods and bads of credit cards.