Things To Know Before Applying For A Credit Card

You want an urgent money requirement but you don’t have any idea about a credit card then it is necessary to know what is a credit card? Credit cards are one of the best options when in need of some instant money. Credit cards are powerful financial tools that not only help you to build a strong credit history but if used rationally they can benefit you in numerous ways.

Once you decided to apply for a credit card and you have to pick out what you think is best for you, it’s time to fill out an application for a credit card. You must have to decide whether a credit card is really required. There are hundreds of credit cards available in the market but which is best for you?  what do you need to know before applying for a credit card? Here you can get all answers for the Things to keep in mind while buying a credit card.

Related Article: How to apply for a credit card?

Following are things to know before applying for a credit card:

1. Types of credit cards

There are many credit cards available in India so it is necessary to know about the best credit card for you. For example, if you are new to credit cards, you can opt for a beginner-level credit card with a low annual fee.

2. Your income

When you apply for a credit card the card issuer will ask about your income to check your repayment capacity. It is proof to the issuer that you will be able to pay your credit card bill. So, income is the thing to consider before applying for a credit card.

3. Start with a low credit limit

It is better to start with a low credit limit to minimize the risk. Once you are familiar with credit bills then you can increase your credit limit. Credit rating totally depends on your income. If your income is low then your credit limit will be limited by your earnings.

4. The important credit card terms and conditions

It is important to know about all the terms and conditions as they contain information you agree to when you use the card. You must know about the card’s APR range, the applicable fees, how rewards work, and all the other significant details. Also, take the proper time to read the fine print in the terms and conditions.

  • APR or annual percentage rates. This is the interest rate you’ll pay on balances you carry from month to month. Some cards charge different rates on different types of balances, including purchases, balance transfers (debts moved to the card from other accounts), and cash advances (cash withdrawn with the card, usually at an ATM). Some cards, though not many, also have penalty APRs, which they impose after a late payment.

5. How does interest apply?

If you pay credit card bills on time then there is no need to pay any interest for the purchase, it means you are using bank money for free as you need. Later you don’t pay your bill in full then interest will apply to the next purchase.

6. How does the grace period work?

The grace period starts from the end of the billing cycle to the next payment due date. A grace period is a time during which the issuer doesn’t charge any interest on the purchases made. If you are not able to pay the bill before the due date then you will be charged an interest rate on the unpaid balance.

7. Fees and Charges related to the card

Make sure you are well known about the fees and charges related to your card.

  • Foreign transaction fees or fees charged when making purchases outside the U.S. typically, 3% of the amount charged.
  • Late fees, which are charged when you pay late by even a day or if you don’t pay at least the minimum amount due.
  • Annual fee, or what it charges cardholders on a yearly basis.
  • Joining fee, associated with the card issue time.
  • The charges associated with balance transfers and cash advances are a moot point if you never make these types of transactions.
  • Over-limit fees apply when you exceed your credit limit.

8. Penalty on late payment

If you do not pay a bill on time then the credit card issuer will charge you a penalty as a late payment, which will directly affect your credit score.

  • Late fees. The first time costs well over $20, and subsequent violations can be close to $40.
  • Penalty APRs. Most credit cards no longer charge penalty APRs, but some do. A penalty APR kicks in when you pay late, and can increase your interest rate to 30% or more right away for new transactions. And if the payment is more than 60 days late, that penalty APR can also be applied to your outstanding balance.
  • Damage to your credit. If you are paying late then it can be recorded as late on your credit report and directly harms your credit score.

9. Balancing your credit utilization ratio

The percentage of available credit you use is called your credit utilization ratio. If you use $400 from the limit of $2000 then your credit utilization ratio is good in order to repay the bill. A higher credit utilization ratio is not good, it directly affects your overall credit health.

10. Understand how credit cards can affect your credit score

If you used your credit card beyond the limit then it can harm your credit score. The credit card impacts your credit score as it defines your financial decisions and management of debt.

11. If you’re rejected for a credit card, the issuer will tell you why

Getting rejected for a credit card is very bummer, but the credit card issuer will tell you that what is the reason you are rejected for like because of lower income, lack of credit history. So, you can improve yourself for approval next time. I hope this article is sufficient for what to do before applying for a credit card.

Read More About the Difference between secure and unsecured credit cards Click Here.

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