Top 7 Things You Should Know Before Applying Credit Card Loan


12 Jul 2021 | 7 min read

In India, credit cards are promoted as must-haves since they’re simpler to hold than cash, offer greater security than cash, and boost your credit score if used smartly. But they also accompany their own pitfalls, therefore, must be used with caution if you do not want to put yourself into the debt trap. 

In the next few seconds, you'll get to learn about the top 7 things that you should know just in case you are considering applying for a credit card in India which will eventually assist you to select the best credit card in India. Let’s walk ahead into the blog post! 


Image Credit: Afinoz (Digitalizing Finance) 

1. Debit and Credit cards are Different 

If this is your first time on the planet of credit cards, you might think they’re very similar to debit cards. But, don’t retain the wrong fact. 

Debit and credit cards function fairly in similar ways yet they are so different. They both might have the brand logo of the reputed credit card companies (Visa or Mastercard). Credit cards are taken into use to swipe for payments, while debit cards for the purpose of cash withdrawal. But the one big difference is that the debit card payments come off a current account while credit card payments are made using credit which you are required to pay off with interest later. 

2. Funds are Limited 

The term ‘Credit limit’ implies the entire amount of cash that you can expend on your credit card. Your credit limit is determined by multiple elements including your credit score and income. People who earn more and have higher credit scores are rendered higher credit limits. 

It’s safer to keep your credit limit to an amount that you consider paying off easily, else, a higher credit limit might tempt you to over-reach. 

3. Minimum Payments 

The term ‘minimum payment’ signifies the smallest amount due on your card every month supported by a percentage that usually ranges between 3% and 5% of the capital. The nominal payment tends to incorporate interest for the month, potential charges for a defaulted payment and if there's an annual fee, a part of it'd even be included. 

The minimum payment terms change from lender to lender so ensure to familiarize yourself with the precise terms of the credit card you’re interested in. As minimum payment is predicated on a percentage, the smaller your debt, the lesser you'll need to pay. 

4. Credit Card Interest 

Credit card providers charge interest as long as you keep a balance over from one month to another. If you pay your balance fully on monthly basis, your rate of interest is irrelevant, as you don’t get charged interest anything. Obviously, it is vital to perceive the specific payment due date so that you can pay your balance entirely and get rid of accruing any interest. 

5. Credit Card Affects Your Credit Score 

There are many ways to build a credit score, but the best among them is to avail of a credit card. Although a credit card itself will not assist you to build a good credit score, your expenditures and repayment will. 

If you responsibly spend your credit card (not over 75% of the limit) and pay off the entire expending every month, perhaps, you can observe a considerable positive upward turn in your credit score. 

However, if you reach your credit card limit monthly and occasionally make repayments, you'll damage your credit score. 

6. Credit Card Fees 

Credit cards tend to turn around with a plethora of potential fees. We’ve already stated about interest fees, but here are some other common fees associated with credit cards: 

  • Initiation fee - Many, but not all credit cards engage a one-time initial fee when the card is issued. 
  • Credit facility fee - Some banks add this to the monthly account fee, stating that it coats the administration and management of the credit facility certainly. 
  • Monthly account fee - This is a recurring fee that you got to pay for using your credit card monthly. 
  • International transaction fees - Credit cards are often utilized abroad and offer a simple cashless option for travel. Nonetheless, international transaction fees will apply, and these are often quite hefty. Thus, ensure to be aware of these fees. 
  • Reward program fees – Credit card providers will sell the incredible rewards to you offered by their credit cards, but in actuality, you buy this facility, which is usually a yearly fee. 

In addition to the above, there also can be other fees such as late payments, cash withdrawals, credit card balance transfers, and going beyond the credit limit. It is a wise notion to seek out precisely what these are for your specific card. 

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7. Normal and Premium Credit Cards are Different 

If you meet the minimum salary criterion, you would possibly be asked to select between a premium credit card or a standard credit card. They technically function the same way, but premium cards accompany certain perks, such as better rewards or 24x7 customer assistance. Thereby, don’t be fooled as these come worth higher monthly fees. 

The Out-Turn 

To conclude, if you think, your expenditures are frequent and you can afford to repay the credit card bills timely, a new credit card can help you build a healthy credit score. But do not forget to do your homework at all like looking carefully at the fees, terms and conditions, grace periods, interest rates, etc. If you're already in the red zone then you must not consider applying for a credit card (at least for now) or you’ll end up with an unending debt trap. 

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