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    First time credit card borrower? Must remember this point before you apply

    Published on June 7, 2019

    Are you applying for your first credit card? You might have so many questions regarding your first credit card application, their use, and how to choose the credit card which best suits you. Credit cards nowadays have become most sought after financial products in countries like India because of the convenience they offer while buying any goods or services. They are preferred over debit cards as they reduce the need for carrying cash in your pocket to make the necessary purchase. But are you aware of what are the essential things that you need to keep in your mind while making the first credit card application? Have a look at some of the points mentioned-below which will help you while you apply for your first credit card.

    What are credit cards?

    Before you make an application for your first credit card, you should be familiar with the basic idea of a credit card and its intended purpose. Credit cards are different from debit cards. They allow you to transact on credit, wherein you pay the credit used on a later date to your credit card issuer. You are permitted to make transactions up to the credit limit available to you and then pay within the bill due date to avoid getting charged any late fee on your missed monthly payment.

    Why do you need a credit card?

    Undoubtedly, credit cards are a convenient mode of making a payment, unlike debit cards. You are not required to carry any cash with you while making any purchase using your credit card. Besides having this benefit, credit cards offer some other benefits too, like a credit card wisely helps you to build your credit. You can apply for loans at a favorable interest rate if you have a good credit score. Additionally, they also offer cashback or travel rewards, equivalent to 1% to 2% of the amount you spend. So, before you apply for your first credit card, don’t forget to check all the benefits that it offers.

    How to choose the right card?

    What is that one thing which you look at while you make your plan to apply for your first credit card? Maybe the cashback or reward points that it offers when you transact using your credit card. There are a plethora of credit cards available in the market today across shopping, travel, lifestyle, or fuel cards. However, it depends on your lifestyle and the spending pattern, which matters the most, which would help you choose the most suitable credit card for yourself. If you are a travel-oriented person, then look for travel cards or if you are someone who loves shopping, look for such cards that offer attractive reward points and cash back while you shop.

    Know the difference between secured and unsecured credit card

     Secured cards are the best option for those who have an inadequate credit history. Secured credit cards are the cards that are backed by security or collateral like a fixed deposit or cash deposit equal to your card’s credit limit.

    On the other hand, unsecured credit cards are those cards that are not backed by any collateral or security. You will get a credit limit based upon your income level and credit history. But if you are applying for the first credit card, most of the lenders would be offering you a low credit card limit due to the high risk involved. Because of this, those who have no credit history should start with a secured card or get an unsecured credit card with a co-signer.

     Interest rates and charges

    The interest rate on your credit card is the price that you pay for borrowing money. All the purchase that you make using your credit card is subject to an interest rate called Annual Percentage Rate i.e., APR. If you wish to calculate how much rate of interest you will pay on your card each day, convert your annual percentage rate to a daily percentage rate by dividing it by 365. For example: Let’s say if you have a credit card with an APR of 16%. Your daily rate would be 0.043% (16% divided by 365). If you do not pay your credit card bill on time, there will be an adverse effect on your credit score, your credit limit will be decreased and you will end up paying a hefty late fee.

    Along with interest rates, the bank charges an annual fee on credit cards every year. However, this annual fee can be waived off if you spend a certain amount with your credit card in a year. The spending limit to waive off the annual fee varies from card to card. However, banks also offer lifetime free credit cards with higher rewards and credit limit. Banks also provide a special offer of lifetime free card for specific customers based on their income profile and credit score. You can choose the card based on your spending structure.

    How does grace period work?

     One of the essential benefits of using a credit card is that you get an interest-free loan and a grace period of 20 to 50 days. See how it works: Suppose your billing cycle is from 5th January to 4th February with a due date of February, 23. The period from 5th January to 23rd February will be considered as the grace period. Any expense made during the billing cycle until the payment due date could be interest-free. Also, purchases made using your credit card after 4th February will be counted in the next billing cycle. However, if you do not pay your balance in full on or before the grace period, after that the balance will be subject to interest.

    Credit cards are beneficial when you want to make an immediate purchase. If you are a first-time credit card borrower, you need to be very cautious and well aware of these crucial points mentioned above.

    Author Bio:

    Nishant is a passionate blogger. He has expertise in writing finance articles. She have been serving society as a financial adviser. He loves keeping himself up-to-date with the news and happenings around. He is always open to learning and shares his experiences on Worldprogs.