7 critical mistakes to avoid when choosing a credit card

Before applying for a credit card, thoroughly review the terms and conditions, including fees, interest rates, rewards structure, redemption policies, and any applicable penalties.

Credit cards have become part and parcel of our daily financial habits. We use credit cards every day for making transactions as it is not only easy but convenient to track our expenses. However, it becomes important for us to opt for cards that are valuable for us and more importantly those which are helping us save money.

However, selecting a credit card can be a daunting task, given the options available in the market. Often there are a couple of things you must not do when you decide to apply for a credit card. It is important to go through your spending habits and accordingly select a card that works like a friend for you. Here are some mistakes you must definitely not make.

Ignoring Your Spending Habits

One of the biggest mistakes people make is choosing a credit card without considering their spending habits. Different credit cards offer various rewards and benefits tailored to specific spending categories such as dining, travel, groceries, or fuel. Evaluate your spending patterns over the past few months to understand where you spend the most. Select a credit card that aligns with your spending habits to maximize rewards and benefits.

Neglecting Annual Fees

Credit cards often come with annual fees, which can vary significantly depending on the card issuer and the benefits offered. While some cards offer premium benefits like airport lounge access and concierge services, they may come with higher annual fees. Consider your usage frequency and the value you derive from these benefits to justify paying the annual fee. Alternatively, opt for a no-annual-fee or low-annual-fee card if you prefer to minimize costs.

Overlooking Interest Rates

Credit card interest rates can be high especially when you delay paying your bills. Many people overlook interest rates when selecting a credit card, focusing solely on rewards and benefits. However, if you anticipate carrying a balance occasionally, opt for a card with a lower annual percentage rate (APR) to save on interest charges over time.

Falling for Sign-Up Bonuses Alone

Credit card issuers often entice customers with attractive sign-up bonuses such as bonus reward points or cashback offers. While these incentives can be enticing, don’t let them overshadow the card’s long-term benefits and suitability for your needs. Consider factors like ongoing rewards, redemption options, and customer service quality beyond the initial sign-up perks.

Ignoring Fine Print and Terms

Before applying for a credit card, thoroughly review the terms and conditions, including fees, interest rates, rewards structure, redemption policies, and any applicable penalties. Pay attention to details such as minimum monthly payments, grace periods, and foreign transaction fees, especially if you travel internationally frequently. Understanding these nuances can help you avoid unexpected charges and manage your card effectively.

Applying for Multiple Cards Simultaneously

While having multiple credit cards can offer diversity in rewards and benefits, applying for several cards simultaneously can negatively impact your credit score. Each credit card application triggers a hard inquiry on your credit report, leading to a temporary dip in your credit score. Space out card applications strategically and prioritize cards that align with your financial goals to maintain a healthy credit profile.

Adhil Shetty, CEO, Bankbazaar.com, says, “Having multiple hard inquiries can lower your credit score because it may suggest to lenders that you are taking on more debt than you can handle. It can also indicate financial instability or desperation for credit, both of which are red flags for lenders. However, the impact of multiple inquiries is usually short-term, and your score can recover over time with responsible credit behaviour.”

Neglecting Security Features

In the digital age, credit card fraud and identity theft are significant concerns. Choose credit cards with robust security features such as EMV chip technology, two-factor authentication for online transactions, and real-time transaction alerts. Familiarize yourself with the card issuer’s fraud protection policies and procedures for reporting unauthorized transactions promptly.

By avoiding these critical mistakes, you can make an informed decision when selecting a credit card in India. Remember to assess your spending habits, consider fees and interest rates, understand terms and conditions, prioritize long-term benefits over sign-up bonuses, manage card applications wisely, and prioritize security features. A well-chosen credit card can not only provide financial flexibility but also offer valuable rewards and peace of mind.