Step by step detailed guide to choosing credit card in India

When one chooses a credit card, surveys have revealed that most of us stick with the same credit card for years to come. Hence getting the best credit card for you and making the best choice on the first go is necessary. Of course, you can change or get multiple credit cards. However, if you are new to credit cards or looking to get another one in India, make sure you get the best deal for you. Below is a detailed guide on various types of credit cards in India. You’ll also know learn our suggested strategy to choose the best credit card for you.

Doing your homework before singing up for a credit card is definitely important. The most important thing, in our opinion, is to read the fine prints and clauses. You may think you’re getting an awesome credit card with all kinds of rewards but it may have a high annual fee or other strings attached to it.

Table of contents:

Why should you have a credit card in India

Credit cards give you the benefit of using the lender’s money to buy things. This is with the clause that you’ll pay back the lender on time. Defaulting on your payments will lead to very high interest fines.

The credit card usage penetration in India is low and slowly increasing. Many of us in fact, do not have one. The reason you should have credit cards is, you can actually save some money by using them strategically to have cash back, rewards etc. However, you have to make sure, you do play the game fair and strategically. Many of us end up loosing a lot on high interests than saving money by using credit cards.

Credit cards are also provide you a backup to fall back on, if you need some emergency cash in unfortunate circumstances. However, we at moneysigma, advise our readers to always build your emergency savings. Read more about budgeting and saving money in India here.

Types of credit card in India

Let’s begin with understanding the various types of credit cards in India. Various credit card providers use different strategies to lure customers on their side. Some offer cash backs on your purchases whereas some offer reward points.

What are Cash back credit cards

Cash back credit cards are cards which offer you your cash back on your purchases made using that card. For e.g., If a card is said to offer 2% cash back on grocery purchases , and if you use your card for purchasing 3000 rupees worth of groceries, you’ll end up paying 2940 rupees- with 60 rupees as cash back.

Usually the credit card companies, can offer to give you cash back, as they make money from transaction fees from the merchants.

There are different kinds of cash back cards in India. They can be broadly classified as below.

  1. Category based cash back credit cards
  2. Tiered cash back credit cards
  3. Flat percentage cash back credit cards.

1. Category based cash back credit cards

These credit cards offers you cash back only on certain category of transactions.For e.g., A credit card offering you cash back on fuels pumped in your vehicle gives you 2% cash back. Any other transactions using that card, will not yield you any cash backs.
These types of cash back credit cards are useful, if you do know your spending category mostly belongs to the one offered by the company.

2. Tiered cash back credit cards

Tiered cash back credit cards- as the name suggests has different percentages of cash backs on various categories. For e.g., a credit card which offers 2% cash back on fuels, 4% cash back on groceries , however only 0.5% on utilities purchases.

Tiered cash back credit cards are usually useful, if you know, your spending categories well and will maximise the cash backs of the allocated spending categories.

3. Flat percentage cash back credit cards

These types of cash back credit cards usually offer a flat percentage of cash back on every possible category. However usually the cash back percentages on such are very low. For e.g., A credit card which offers you 0.05% of cash back on all your purchases.

Most cash back credit cards have annual or renewal fees, however the benefits can be outweighed if you strategically plan your spendings based on your life style.

Reward points credit cards

Reward point based credit cards as the name suggest offers you rewards points for your purchases using the card.

Rewards points are usually just some points which you can then use or exchange to buy new stuffs. For e.g., On every purchase of your vehicle fuel, you may get 1 point for every rupee spent. Once you select enough number of points, you can then offset them to get free stuffs listed on the reward catalogue. Say, if the bank is running a promo to offer you a free cellphone for 25,000 rewards points, you can opt for it.

The value of the points usually differ from companies to companies. You could find the latest value of your points by looking into the offers catalogue. If the company is offering you a free cellphone for 50000 points and the actual market value of the phone is say 25,000 rupees, your every point is worth 50 paise.

If you enjoy having benefits from exchange of reward points, you can opt for rewards based credit cards.

Partner Branded credit cards

Many companies partner with credit card companies or banks to introduce partner branded credit cards. Say for example- such credit cards in India could be ICICI Big Bazaar credit cards, Standard chartered Yatra credit card, HSBC MakeMyTrip credit card etc.

These credit cards are usually partnerships and are meant to give you extra benefits from the partnered company. So, if you use the card to transact with the partnering company or business, you get extra points. However, the reward points or cash backs offered on other types of transactions are very less.

If you are opting for such credit cards, you have to make sure to check the various benefits its offers and if it makes sense for your usage and lifestyle.

Strategies to select the type of credit card in India

Now that we know the broader categories of credit cards offered in India, let’s look at strategies on how should you opt for one.

Based on your choice of cash back, rewards points or other benefits you might zero down on few cards. The other aspect of selection is to look at what you want to achieve financially by getting this credit card.

To save on interest rates or annual fees

Based on your planned usage, you might want cards that help you save on your interest rates. Cards which has lesser interest rates, as well as no interest rates on certain purchases might help you save money.

Look for various banks or credit card companies offerings and compare their annual fees, and if the fees can be waived off. Compare the various interests and fees on each and zero down on few more cards.

For types of rewards

This is a broader category to consider when choosing the type of credit card you want. The strategy is to find cards that offer you rewards based on your lifestyle.

  • If you plan to travel a lot, opt for cards that offer your rewards or cash backs on travels.
  • If you do most of your shopping online, opt for cards that offer you rewards or point for online purchases.

Type of card- VISA/ Mastercard or others

VISA or Mastercard or AMEX etc are the protocols or payment systems used by the credit card companies for transactions. These companies usually have contracts with the credit card companies to offer credit cards using their protocol to the market.

VISA or Mastercard or AMEX or any other payment system for that matter may introduce another layer of promotions with merchants. For e.g., You could get 5% cash back if you use Banks A’s Mastercard credit card. However, this is not applicable on Visa cards of the same bank.

In such cases, if you want to maximise the benefits from your cards, it usually good to have each of such cards. We would suggest you to check the popularity of each and the offers available for your lifestyle and opt for them. Having every single type of card may not really be a good strategy too. Research and optimise the best two or three types.

Options to change the payment dates.

Most credit card companies have their billing cycle and require you to pay your credit card bills within that cycle. However, if you are a beginner or new to savings – you might want to opt for those who allow you to change your payment dates based on your salary or income date.

On the long run however, we would suggest – one to build enough savings that you do not live pay check to pay check.

Card which provide Interest free EMIs

EMI or Equated Monthly Instalments is the idea of breaking down your big ticket purchases to small monthly payments. Many banks offer EMIs and it is popular amongst Indian purchasers. The idea is to break down your big purchases to small amounts.

The catch here is, if your credit card offers you interest free EMIs, you could actually save on interest by paying the amount for your purchase later. Your money sits in your bank helping you build savings. However, you need a dedicated strategy to make sure you do pay on time to avoid hefty fines.

If you plan to purchase heavy ticket items using your credit card, it would be good to check if it offers interest free EMIs.

Ease of payments

You will have to pay your credit cards bills on time. Missing it or forgetting to pay, will “reward” you with hefty fine. Loosing money to interests on credit cards, is not a good strategy at all. It works against our principles of earning to save money.

Now not paying on time, or forgetting to pay may happen. So, if you can reduce occurrences of such, it would be good. Various credit card companies accept NetBanking payments or cheque payments. You might want to look at ways the credit card companies accept payment and the ease with which you’ll pay it. This could be a deciding factor while choosing your credit card too.

Ease of using the credit card with your phone.

For some of us technology freaks, we might not want to carry the card everywhere we go. If the card works easily with Samsung Pay, Android Pay or Apple Pay and provides benefits for using it, then this might be a deciding factor to choose one too.

Steps to Choose credit card by asking right questions

Now that you have a summary of the strategies, follow the below steps to choose the credit card by asking the right questions.

Begin by answering these and you should hopefully be able to zero down to your desired card.

  1. What will I use the card for ? – Find best offers that match your goal.
  2. What are my spending habits like ? – Answers all categories or rewards benefits you should look for.
  3. Find rewards that are useful to me. – Amongst the available rewards or benefits, find that you really need and those that will help you save money.
  4. What are the fees ? Can annual fees be waived off and how ? – Find if you can save on unnecessary charges.
  5. When do I have to pay the bills and how much percentage of my spendings is the minimum bill? – Finds the minimum amount you have to pay and if you are comfortable with.
  6. How much is the interest rates if I ever default on payments ?
  7. Can I adapt the billing date to my salary date?
  8. What payment methods the bank or credit card companies accept for payments?

Apply for the best valued credit card.

Now that you know all the strategies and steps to getting your credit card in India, start applying.

Most credit card companies require one or more of the following documents to apply for credit card.

  • Residential proof
  • Birth certificate
  • Identity card [Aadhaar card/ Passport etc ]
  • Photographs
  • Proof of income
  • Photographs

Once you apply, the banks usually run a check on your you and decide if they can offer you a credit card. This is based on your lending history or CIBIL score.

On approval, you should have your card delivered to you. You will have to activate to start using it. Congratulations ! Enjoy your credit card- responsibly! You might always want to improve or maintain your CIBIL score.

Until then, happy personal finance management !- If that’s a phrase. Make the right money moves my friends ! Thanks for reading.