Credit card companies have gained immense traction of late due to the proliferation of e-commerce. Consumers are increasingly opting for credit card payment in case of such transactions. Owning a credit card has become very easy these days, but the credit card holder must be cautious of its various functions, and obligations that come with it.
It is important to be clear on a few rules before applying for a credit card –
1. Spending habits
One of the most important credit card rules that has to be kept in mind is the expenditure incurred by the individual and his/her ability to pay the outstanding balance in the credit card cycle for avoiding any late charges. The more time it takes to pay off the balance, higher the late charges will be imposed. If the outstanding balance is settled within the cycle, the credit card holder will be able to earn a better credit report. If the balance is likely to be paid in full every month, it is better to apply for a credit card with a longer grace period without any annual fee. On the contrary, it is better to opt for a credit card with the least interest rates.
2. Interest rates
The interest rate may be either fixed or on a reducing balance. Fixed interest rates on a credit card is where the same rate of interest will be applicable on the total outstanding amount or the EMIs transacted or converted through them. Reducing balance interest rates are applicable on typically on EMIs converted. Here, the interest is not pre-calculated on the total purchase or transaction but instead on the remainder principal after each EMI payment. Note that reducing balance interest rates are higher than fixed rates but may eventually help same more as interest payment.
3. Credit card limit
Credit card limit is the amount that the company will enable the card holder to borrow. The credit limit is usually dependent on the credit history of an individual. The limit on the credit card should not be exhausted since it will adversely impact the credit score.
An important credit card rule to be kept in mind for using a credit card wisely is to opt for a lower credit limit because high expenditure will necessarily entail high repayment having negative effect over the financial health of an individual. It is essential to calculate an approximate amount so that expenditure does not go over repayment limit.
4. Fees and penalties
One of the major tips to choose the right credit card is to clearly understand the fees and penalties imposed. The fees and penalties for the credit card would amount to a substantial sum that the credit card holder may have to repay in the subsequent month. Credit card rules also require that the fees should be identified which may include charges for various transactions such as cash advances, balance transfers or requesting increase in credit limit. In the event of delay in bill payment or exceeding the credit limit, the cardholder will have to bear penalty charges. A credit card with reasonable fees will be easy on the pocket of the cardholder.
5. Added benefits
Best credit cards offer reward programs providing additional financial benefits to credit card holders. The credit card should have such a program where the reward points can be easily redeemed. There are many things to do with credit card reward points such as in travel bookings or availing discounts. However, one should be mindful of the restrictions that may be associated with such reward programs.
Reputed non-banking financial company Bajaj Finserv offers the Bajaj Finserv RBL Bank SuperCard which is loaded with multiple features for the benefit of its users. The credit card allows interest-free cash withdrawals from ATMs for up to 50 days for a charge of only 2.5% as processing fee. It also comes pre-programmed with in-built robust security features to mitigate cybercrime threats.
Best credit cards can be of immense use, primarily increasing the purchasing power of the user. It is better to compare the different credit cards on offer with respect to the interest rates, fees, and other benefits before availing one. One should keep these credit card rules in mind before opting for the card.