How to choose a credit card that’s right for you

The good news is that all credit cards come in one shape and one size. The bad news, however, is that they come in so many varieties and offer so many options that one often finds it difficult to decide on which credit card to go for. More often than not, people get taken in by the hype and end up choosing a card that is not suited to their financial situation.

Credit card picture

Remember that your individual financial situation and financial dynamics may be different from others’. Depending on individual mindset, lifestyle and spending habits, the challenging financial situations that different people face differ from individual to individual – for example, some people may be shopoholics, some prudent spenders, some may hate paying interest, some don’t mind, or some are frequent flyers, and so on. It is, therefore, important to choose a credit card that reconciles with your financial situation and dynamics, and here is a small guide on how you can do that:

Primary Considerations

What type of a spender are you? Do you pay all your credit card bills in time or do you prefer to part-pay them, thereby allowing interest to be charged on your outstanding balance. If you are a prudent spender, and if you’re fairly confident of paying up the entire monthly credit card bill, then choose a Cashback credit card. These cards reward cardholders with cash – additionally, they also pass on other benefits such as airline miles and rebates. To apply for a cashback credit card, your credit rating must be well above average.

If you plan to carry forward your credit card balance, do not mind paying interest and are confident of clearing the credit card balance within a certain period (let’s say 6–12 months), then apply for a Low interest rate credit card. Go for a card with the lowest interest rate (preferably 0%). Also, keep in mind that this rate must be valid for a reasonable period (say 6 months minimum), by the end of which you can repay your outstanding balance in full.

Now we come to a dicey scenario – if you are not a disciplined spender and do not meet your obligations in time, but you still want to stick with one credit card company because you know you will somehow stabilize your repayments in the future, then you must apply for a low interest rate credit card that features consistent and reasonable terms, and where the low interest rate holds for a long-term.

If you have already defaulted or delayed on your existing credit card’s repayments and are paying a high rate of interest (and penalties, to boot), then you must switch to a balance transfer card that carries a low rate of interest along with reasonable terms. Such a move can save you a whole lot of money. Keep in mind that you need a good credit score to qualify for these types of cards, and that you must never shift your balance to a cashback credit card.

If you are a student, then make a start with a student credit card.

Secondary Considerations

The primary considerations mentioned above would have broadly clued you on to the type of card you should own. Now, here are some secondary considerations that you must take into account – these are based on how you use your credit card. You have to reconcile your probable credit card usage with the primary considerations above and then select the card that’s right for you:

Airline miles credit cards

If you are a frequent flyer, then go for this card, but do run a check on: (i) How many miles you will earn for every Pound spent? (ii) How many miles you should accumulate to qualify for a free air ticket? (iii) How and when do the accumulated miles expire?

Rewards Credit Cards

If you are an aggressive shopper and yet a responsible person who believes in meeting his obligations, then go for a rewards credit card, which will load you with goodies, shopping discounts, gasoline rebates, and other entertainment rewards.

Business Credit Cards

These come with the usual incentives (airline miles, rewards, cash back, for example) and help a business owner keep his business expenditure separate from his personal expenses.

Once again, remember, you always have to reconcile your usage with the primary considerations before taking out a credit card.

People with a chequered credit history should not lose hope. They should rebuild their credit score by using a pre paid credit card. These cards limit your spending to the amount of the security deposit you have lodged with your card company and come with low limits. But, they are great for building/rebuilding a credit score.

You must go for a card that will match your needs and mindset. This guide may not clue you on to the exact card that’s meant for you, but will surely help you zero down your choices to a couple of cards.

In conclusion, always pay your credit card bills on time, do not keep availing personal loans as they come at a high rate of interest, and try not to keep outstanding balances on your credit card.

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