Evolution and innovation in banking have made life easier for citizens. Earlier, there were only cash transactions. Now, there are checks, debit cards, and credit cards. You also have internet and mobile banking. The whole concept of banking has changed. All these transactional tools empower customers to do more.
Credit cards enable you to buy things you need but cannot afford right now. There are equated monthly installment (EMI) schemes. There are also easy payment options. These facilities have reduced the burden of carrying cash. So, you have some protection from theft and fraud. New credit cards are chip-and-pin-enabled. This makes them more secure than cards with magnetic strips.
Here are six things you should know before applying for a credit card.
1. Rejection due to poor credit score
It is easy to apply for and get a credit card. But the financial institution could reject your application in some cases. Suppose you have not repaid past loans or credit on time. Or imagine that you defaulted on credit card payments. These factors could damage your credit score. In such cases, the credit card issuer may reject your application.
2. Credit card against fixed deposit (FD)
Are you self-employed with no income tax return (ITR) documents? Maybe you are a housewife. One option is to apply for a credit card against your FD. You can approach a bank and ask about this facility. Remember to check all terms and conditions.
3. Ensure timely credit card payment
Pay your credit card bills on time. Then you can rely on these cards during difficult situations or financial emergencies. Suppose you do not pay on time. Then the interest and penalties can be very high. Make sure you have enough funds in your account to clear your credit card bill every month.
4. Controlled spending is important
Do not cross your credit card limit every month. Banks check your spending habits. They can look at excessive spending as irrational financial behavior. Crossing your credit card limit on a regular basis can affect your credit score. Banks may even cancel your card.
5. Check the applicable interest rate
Different banks levy different interest rates depending on their policies. Check the applicable interest rate on your credit card. Also, find out about penalties and the credit period. Look for other benefits like cash-backs and rewards as well.
6. Determining minimum payments
The industry standards keep fluctuating from time to time. But minimum payments are generally 1% to 3% of the total outstanding. Suppose your outstanding balance is $10,000 and the rate is 2%. Then the minimum payment for the month will be $200.
Credit cards are a virtual power. But with great power comes great responsibility. So, it is important to know what you are getting into before applying for a credit card.