When we talk about credit card usage we find different people managing it in a different way.
Some people are highly disciplined and never default on their payments and others are so messy that they are always on the top of the defaulters list. A credit card provides you a certain degree of freedom and this should not be misconstrued as limitless.
You have to pay back at the end of the free credit period but our impulse shopping instincts sometimes does not listen. To avoid getting into trouble in future it is advisable to understand your credit personality and choose the credit card, which suits you the best.
Let’s figure out the kinds of credit personalities that exist and what card they should typically opt for.
You are just out of college in your first job. You never had surplus cash before and hence no financial planning was required. You have never utilised credit previously and you are very taken up with the concept of a credit card. As expected, you are in a hurry to apply for one.
For beginners it’s advisable not to go for cards with a high credit limit. Your financial wit has never been tested so better be cautious. This is just the beginning and once you are sure that you can manage your finances well, you can go for credit cards with a higher credit limit.
Example: All banks will provide you with credit cards with low credit limits.
You have been there and done that. You are great at financial planning and almost everything is in perfect shape. You never default on your payments and never spend beyond your means. Reward offers don’t alter your spending pattern and you plan every move before executing.
For you, the best suited card is one with cash back facility and a good reward structure. The reward points should accrue irrespective of the type of purchasing done and can be redeemed at one go. Interest rate on your card doesn’t matter much as you always pay on time.
Example: Citibank Cash Back Card (Assured cash back every time you swipe your card), ICICI Bank Credit Card associated with various vendors like Big Bazaar, SBI Silver Card.
You love spending and believe it to be the motivation for earning. You plan things beforehand but don’t mind going overboard at times. You cross your spending limit at times and end up in situations where you don’t make full payments.
The most important property, which the carefree should look for, is the interest rate. As you carry forward the balance your interest expense is going to be high. It’s advisable to choose a card which offers the lowest interest rate. You should also check for zero annual charges as well.
Example: Axis Bank Easy Platinum/Gold Credit Card (lowest interest rate of 1.95 per cent p.m.)
The topsy turvy
You don’t understand financial management. Almost every time you don’t even pay the minimum amount due on your credit card. All the customer care executives of the bank know you by name and are in constant touch with you. You always end up paying heavily in interest and late payment charges.
For you a prepaid card is the best bet as it will save a lot of money, which you pay as interest and various charges. It will also prevent you from spending beyond your means.
Example: SBI EZ-PAY Card, HDFC GiftPlus, ICICI Gift Card
The Credit Paranoid
You never wanted a credit card in the first place. According to you being in debt is a crime. You applied for the card just because it made your life easy in some scenarios like booking air tickets and overseas purchases. You only swipe it in some kind of emergency and it goes unused at times for months.
The best card, which will suit your needs, is the one with no annual charge. You never make late payments and you are not a frequent user so interest rate and reward structure of the card doesn’t matter much for you.
Example: ICICI Bank Preferred Silver Cards, Axis Bank Gold Card, Bank of India Classic Card, ICICI Bank Cash Gold etc.
So do get clued on to your credit personality, research on a suitable card and then dial the bank.
—The author is CEO, BankBazaar.com