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Credit Card

6 questions to ask before getting your first credit card!

Chances are that you have seen your parents use them, your relatives and friends too. Credit card is now an essential piece of convenience in everybody's wallet for both regular and online shopping.

Are you ready to join the club just yet? Before you do, here are a few things to keep in mind.

1. How to choose the right card?

What is the one thing that you are most likely to spend on, or should we say you wouldn't avoid on a monthly basis? Fuel perhaps? Maybe your job requires you to travel more within the city. Travel - you spend half the month flying across local and international destinations. Shopping - you love pampering yourself.

Whatever be your lifestyle, there is a credit card that rewards your spending choices with rewards ranging from free fuel and lounge access to reward points at retail partners, air miles, cash back etc. Choose one that gives you the maximum benefits and privileges, according to the categories you spend on.

2. What is the joining fee / annual fee of the card?

Not all credit cards have a joining or annual fee. If there is a fee, make sure it is accompanied by adequate rewards, which come in the form of air miles, free fuel, reward points etc. You will find that the bank may charge a joining fee in the first year and annual fee from the next year onwards. You might wonder, "Is it really worth it?" You should carefully compare the fee with the rewards and privileges before you make your choice.

3. What is your credit limit?

It is the maximum amount you are allowed to spend, set by your bank, based on your credit score. Needless to say, it varies from person to person. Should you turn to be a high spender who always pays back on time, your bank might offer to increase your credit limit. However, ensure you do not splurge beyond the credit limit as you may be charged for exceeding your limit.

4. What is your cash advance and limit?

This feature comes to your rescue in a cash emergency and allows you to withdraw money from the ATM using your credit card. There is also a limit as to how much you can withdraw, usually the limit set by the bank is lesser than your credit limit. However, this should be used only as a last resort, as the fees and interest rates charged on cash advances may be high.

5. What happens when you only pay minimum amount due?

You can pay your total outstanding on your card before the due date to avoid any interest charges. On the other hand, when you pay just the minimum amount, you will be charged interest for the whole amount utilized. So, it is better to pay off the outstanding within the interest free credit period.

6. As good as your CIBIL/credit score

Your credit score is given by the Credit Information Bureau Limited, ranging between 300 and 900, as an indicator of your credit worthiness. The moment you avail of any credit instrument (e.g. credit card, personal loan, home loan etc.), your score is generated. Your CIBIL score is calculated based on your track record of credit card payments, loan repayments etc. The higher your score, the more credit worthy you are.

When you apply for a home loan or a personal loan, banks take your CIBIL score very seriously. Even the interest rate offered to you depends on your credit score. So yes, your credit score is very important!

Ravi Sharma, a software developer of 2 years is foraying into this brigade saying, "All my friends have a credit card. They make purchases both online and offline. I would like that convenience too!" What about you?