#FinancialBytes: Factors to consider before taking a credit card
Credit cards have become an essential financial tool today because of the convenience they offer. People use credit cards for almost everything, including online/offline shopping, bill payments, travel-purchases, etc. Credit cards are designed to meet different requirements. Before selecting one, people must pay attention to some important things to make the most of it. Here are some factors to consider before taking credit cards.
Analyze your shopping habits to find a suitable credit card
Finding a suitable credit card can be difficult as there are many card types catering to different requirements that offer various benefits and rewards programs. One must analyze their spends and shopping habits and know which card best suits them for earning reward points, cashbacks, discounts, miles, etc. Frequent travelers can choose travel cards while shopping lovers can choose rewards cards and so on.
Know about the interest rate charged on the credit card
Another important factor to consider before taking a credit card is the rate of interest. Interest rates on credit cards are generally higher. Credit card providers follow Annual Percentage Rate (APR)-based daily compounding interest rate. Depending on the card type, one can find cards either on fixed or variable interest. Also, some providers offer interest-free period from date of transaction to payment due date.
Which is better for you? Secured or unsecured credit card?
Before choosing a credit card, one should consider whether a secured or unsecured credit card is more suitable for them. A secured credit card generally comes with lower rates of interest and is issued against collateral or fixed deposits. The credit limit depends on collateral value. Unsecured credit cards, however, don't require any collateral to be issued but usually have higher rates of interest.
#4: Credit limit offered by the bank
One should also consider the amount of money the bank/credit card provider is willing to lend. Depending on a person's income, eligibility criteria, and other factors, the issuer sets a limit. To avoid trouble, one must ensure that they spend within their credit limit.
The minimum payment amount for your credit card transactions
While applying for a credit card, one must understand how their bank would calculate the minimum payment amount for transactions. The calculation might differ from bank to bank and one must go forward only if they can pay the minimum amount every month regularly. Also, one must consider other charges like transaction fees, cash advance/balance transfer charges, late payment penalty, etc. levied by banks.
