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Money Nov 27, 2012

Shopaholic or a foodie? Here’s all about choosing the right credit card

By Bindisha Sarang

If you are looking to get yourself a credit card, simply taking it from the bank with which you have savings account does not make sense. There are a number of credit cards and picking the right card is imperative, after all, you might land up using the cards for years to come.

Join the conversation between Sid and Mala, two fictional characters created by Firstpost, to know how to pick the right credit card.

Mala is sitting in her living room with an application form for a credit card, when her cousin Sid, walks in.

Sid: Hey, Mala. Working on a Sunday?

Mala: Nope, just filing out the credit card application form.

Sid: Which one are you getting?

Mala: What do you mean by which one? The one which my bank gives me.

Sid: But, what if your bank gives you a card that does not fit your need?

Mala: (Getting confused) My needs. All, I need is some credit, that's it. Are you telling me there are cards based on my need? (Laughs)

Sid: Of course, the card choice should be based on your need or lifestyle basis. So, if you need the card for fuel purchase, it makes more sense for the petro-credit card than the ones that offer better deals on dining.

Mala: (Thoughtfully) Oh, I never thought of it, in that way.

Sid: (Smiles) There are several types of cards to choose from. Why simply go with the one your banks stick into your palm?

Mala: Could you tell me about them?

Sid: Sure. There is a 0% fuel -credit cards. This works well for someone who needs to buy fuel with the card.

Mala: What are the benefits?

Most cards charge you a joining fee, as well as annual fee. But if you are not too keen on paying such fees, there are a few smaller state-run and private sector banks that offer no annual fee cards.

Sid: When you use your credit card to buy petrol, most credit cards have a 2.5% transaction surcharge. For someone who has a high fuel need, it make sense to go for 0% fuel surcharge credit cards. These cards give you a waiver and you save the 2.5% of the transaction amount every time you use the card.

Mala: Wow, sounds good. What are the other cards?
Sid: There are cash back cards. Which give you cash rewards on purchases you make.

Mala: Sounds good? How much would I get as cash rewards?

Sid: The cash reward is usually a fixed percentage of the amount you spend. Usually, it is around 5 percent as cash back when you shop for medicines and book railway tickets. Some cards give 10 percent cash back across select restaurants and movies.

Mala: That would work for Sunita, she is the more movie-mall types.

Sid: Yes, as long as she pays her dues on time, the cash back should not be an issue. At times these cash back offers are seasonal. So she has to keep that in mind. And the cash back amount really varies from bank to bank.

Mala: What about rewards points?

Sid: These let you earn reward points every time you use your cards. Usually it's one reward point for every Rs 100- Rs 250 you spend with the card. Then there are retail-discounts credit cards which have tie-up with retailers. So, if you like buying electronics and the retail discount credit card will give you discounts with that retailer.

Mala: Cool. My friend, Jaya likes travelling, am sure there are such travel discounts cards as well?

Sid: Then there are co-branded Air miles cards. These are good for frequent flyers, where the card is tied up with a specific air lines and you air miles for every travel. Some co-branded air miles let you accumulate reward miles across air-carriers.

Mala: There are so many options to chose from. But I am sure I will have to pay a lot to get these cards.

Sid: Most cards charge you a joining fee, as well as annual fee. But if you are not too keen on paying such fees, there are a few smaller state-run and private sector banks that offer no annual fee cards.

Mala: Now I know about the options, anything else I need to know.

Sid: Truth be told, dealing with credit cards is more tricky than dealing with loans. Let the usage of the card, interest, followed by the credit limit, fees and charges and credit cycle be the deciding factors while choosing the card.

Mala: Credit cycle?

Sid: The number of days you get as interest free period. For some cards, it is 18 days, others could be 55 days.

Mala: Ahh, how will I know about that?

Sid: Reading the terms and conditions is not very practical thing. So, banks will give you a copy of Most Important Terms and Conditions. You should read this, to know what exactly you are getting into.

Mala: (Tearing her card application form) Sounds good. It's about time, I did some research to get a good card deal.

Sid: Keep in mind that banks are here for profits which means all the cards I mentioned above will have some sort of "Conditions Apply" to them. So you better read....

Mala: Ya, ya..., the MITC...

by Bindisha Sarang

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