People often think that credit cards are only used for shopping or as an emergency back-up. But they are more than that, responsible use of credit improves your credit history. The excellent credit repayment history reflects on your credit score, which eventually attracts favourable interest rates and reasonable insurance plans.
Right now, there are hundreds of credit cards available. Hence, selecting the right one is often confusing. Ideally, the right credit card should cater to all your needs, right from shopping to paying utility bills. If you want to end up with right credit card, here are some important things to consider before applying for one,
Type of credit card
In India, credits cards are generally of two types, Standard and Premium.
- Standard credit cards: These are basic cards with less annual fees, less offers and rewards attached to it.
- Premium: These are basically Gold or Platinum cards with higher annual fees and many benefits like cashback, loyalty points, etc. linked to them.
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Credit card users are charged with interest on the debt they owe to the bank, and this interest is nothing but the finance charge. Understanding the calculations of finance charge helps you to get the best credit card. Various things are taken under consideration to calculate the finance charge, such as APR, the outstanding amount, etc. It is always beneficial for you to get a credit card on which many parameters are considered to decide the finance charge.
The Grace period
All financial institutions provide the credit cardholders with a specific amount of time to repay full balance on their cards before calculating the finance charge for expenses. This time is called a grace period, which starts from the billing date. Generally, the grace period ranges from 30 to 45 days. You should choose the credit card linked to more grace period.
Every credit card has a credit limit, which is the maximum amount available for its usage. It generally varies from Rs. 15,000 to Rs. 2,00,000. All banks have their own guidelines to determine credit limits. Generally, the type of credit cards influences credit limits. However, banks consider other factors like credit history and income of the individual to decide the credit limit.
Annual percentage rate (APR)
APR is the interest rate on the outstanding amount or balance after completion of the grace period. All banks have their set of guidelines to determine the annual percentage rate on credit card. Moreover, the type of transactions made on credit cards also influences APR. Generally, it varies from 1.90% to 3.5%. You should get a credit card with a low APR.
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It is charged on credit cards for all the benefits provided linked to them. The credit card giving organisation automatically deduct annual fees on your account. Sometimes, annual fees come with interest. Find out how much your bank is charging you as annual fees before buying a credit card.