7 Things to Know Before Getting Your First Credit Card

7 Things to Know Before Getting Your First Credit Card


7 Things to Know Before Getting Your First Credit Card
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Credit cards are simple and a bit useful financial tool too. Getting a credit card is not a big deal to those who already have some credit history. But you might face some difficulty getting the best credit card for your very first time. So, let's discuss things to know before getting your first credit card.

Do you want to have a credit card? Getting a credit card is not a big deal to those who already have some credit history. But you might face some trouble in getting the first credit card. A credit card is nothing but an unsecured loan by a financial institution like banks, NBFCs (Non-Banking Financial Company), etc. You might wonder why it is an unsecured loan? Because in most cases, no collateral is required for having a credit card. So, the card issuer takes the risk while issuing a new credit card for you. Does this mean you don’t have any risk of having a credit card? Not really! Credit cards are simple and a bit useful financial tool too. But things may get complicated if you do not use it properly. So, you are reading this article means you do not have a credit card yet and looking for the same. Well, let's discuss things to know before getting your first credit card.

#1. Your Income Matters

If you are in a hurry to apply for your first credit card, then wait! How much you earn and your source of income matter. Every credit card issuer sets its minimum-earning criteria. To be eligible, the first step, you should check whether your income is pretty enough for the card you are applying for or not. If you are a salaried person, you should have the latest payslips, Form-16 or 3-years of IT return of the last three years. For business owners, the latest bank statements, including IT return copies might get required. If you don't have such documents, you should avoid applying for a new credit card unless you have received an offer from the Bank. Sometimes, banks offer credit cards for their existing savings account holders. 

#2. Know Your Credit Score 

Do you know your latest credit score? If your credit score is above 700 points, there is a higher chance of approval of your first credit card application. A credit score is a three-digit number range from 300 to 850 that denotes a person's creditworthiness.  A higher score means a financially stable person who has a pretty good credit history. A person who has never taken any loan in the past may not have this score or have the least score. Without having a good credit score, the chance of rejection of the credit card application increases. However, some banks offer credit cards against security deposits like FDs, bonds, etc. If you have a lower credit score, you can still get a credit card against a security deposit. 

#3. Possibility of Having Less Credit Limit

If you are applying for a Credit Card for the first time, you might not get the credit limit as per your expectation. Maybe you have strong financials to have a handsome credit limit. Even banks can issue basic credit cards for beginners. As I said earlier, a credit card is nothing more than a long-term unsecured loan that is issued based on your credit history. Naturally, a card issuer takes less risk and approves a lower credit limit to a new Credit Card. Once you manage to pay your credit card dues on time, you can expect a significant hike in your credit limit.

#4. High Impact on Your Credit Score

Having a credit card is not a bad thing at all. It comes with lucrative offers, online deals, 50 days interest-free loan, cashback rewards, etc. But everything is not good having a credit card. If you maintain it properly, it can certainly be a piece of great cashless equipment. But, misusing credit cards like non-payment, excess cash withdrawals can be like a disaster.

Banks or card issuers charge very high interest, sometimes even 30 to 40% per annum, as a penalty of non-payment dues. Not only that, card issuers report this as a negative or doubtful activity to credit bureaus. Believe it or not, this thing is worse and drops your credit score drastically. Once it falls, it will take a very long time to recover, and there is a very high chance of not getting loans in the near future. 

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#5. Multiple Credit Card Application

Getting a Credit card for the first time is not just easy in most cases. Mostly, beginners make some mistakes when filling the credit card application form. To get the best credit card, some newbies input wrong information like monthly earning, address, invalid PAN number, etc. You should not input false information when applying for a credit card. The card application only gets approved after cross-checking all details you provided either from your PAN or by physical inspection of your docs. Due to any reason, if your credit card application is rejected, you should not reapply immediately. 

On every rejection, your credit score gets dropped. Multiple and frequent credit card applications can be the cause of severe damage to your credit score. Usually, lenders do not like credit hunger guys. Therefore, for whatever reason you find that your application has been rejected, you will have to wait a few months, and you will be deemed eligible for the card once and reapply.

#6. Having a Savings Bank Account

Although, it is not mandatory to have a Savings account for a credit card. But having a savings bank account can increase the chance of getting a credit card sometimes. If you hold a savings account and maintain it properly for a long time, the same bank might offer a credit card for you or approve your credit card application based on your banking transactions and history. Apart from this, a bank account with an internet banking facility is quite helpful to pay credit card bills by yourself. Internet banking autopay allows the establishment of mandate directives that automatically pay monthly arrears without manual intervention.

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#7. Know About Fees and Charges

Certain charges are applicable associated with credit cards. Those charges may vary from card to card and bank to bank. But the common thing is that you have to bear some sort of fees or charges if you want to use a credit card. These charges include Annual Maintenance Charge (AMC) or annual fee, ATM withdrawal Fee, International Usage Fee, late penalty fees, etc. The more feature-packed card brings a higher amount of fees. So, it is always recommended, read the 'fees and charges' before applying for any credit card. Here is the list of charges you need to know before applying for a credit card:

Annual Maintenance Charge (AMC) or Annual Fee

Every credit carries some amount of fixed annual charges. It may differ from card to card. Typically, the Annual Fee of a credit card starts from INR. 500, and it can go beyond 3k. However, some issuers and merchants unitedly offer lifetime free credit cards that do not have this annual fee. Some popular lifetime free credit cards are Amazon Pay ICICI Credit Card, IDFC FIRST Select Credit Card, HSBC Visa Platinum Card, Kotak Fortune Gold Credit Card, etc.

ATM Withdrawal Fee 

ATM withdrawal fee is applicable whenever you withdraw cash from an ATM using your credit card. This charge can roughly be 2 to 3% or a minimum of 200 to 300 INR according to the withdrawal amount. 

International Usage Fee

International transaction charges are applicable when a credit cardholder uses the card for international transaction purposes. However, it is not mandatory to have this charge for all credit cards. If you choose a credit card for international transactions, you should opt for a credit card that carries low or zero international transaction charges.

Interest Rate

Credit cards offer 40 to 45 days loans without interest. But if you are unable to pay dues during this period, the issuer will charge a high amount of interest on your card usage amount. This rate of interest is roughly about 2 to 3% per month or ever higher on a monthly compounding basis. It is advisable that you should be informed about this charge before using a credit card.

Late Payment Penalty Fee

On payment after the bill due date, a fixed charge is applicable, which is called ‘Late Payment Penalty Fee’. This fee can vary from card to card. In most cases, you have to pay interest as well as a late payment penalty fee if there is a delay of payment.

The Bottom Line

Now you have an idea when you should apply for your first credit card. But getting the first credit card is not easy because you don't have any unsecured loan account in your credit history. So, the card issuer will thoroughly scrutinize your financials before approving the card application. The main mistake for newbies is they apply for credit cards very frequently. Remember, lenders do not like credit hungriness. You will lose the chance of getting your first credit card on multiple credit inquiries. Due to any reason, your first application got rejected, you should re-apply a few months later or once you have fulfilled eligibility criteria. Otherwise, getting a credit card for the first time is not a big concern.

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