Things to watch out for while getting a credit card

Frankly, how many of us really bother to read the fine print before getting a credit card? Not many, really. As we get lured by attractive offers and benefits on these cards, we tend to neglect the important part of this process, i.e., terms and conditions. The gravity of which dawns on us when we get our credit card statement. If you do not want to be surprised by the figures mentioned in your card statement, watch out for the following things before you get a credit card.

Interest Rate

When it comes to the interest rate, credit card companies get creative. They usually mention the interest rates as 2.49% or 2.95% which might not seem to be very high at first. But these are monthly figures that on conversion give a very high annual cost. For instance, the interest rate of 2.49% per month works out to 34.33% on an annual basis, and 41.74% for 2.95%. Further, credit card companies can change their interest rates, on a short notice of 15 days.

Minimum Amount Due

If you are not able to pay the entire outstanding dues on your credit card, credit card companies will ask you not to worry about it and just pay the minimum amount due. But why? Because this situation leads to more interest generation for the companies as the customer is less likely to pay off the balance. Minimum amount due is usually a certain percentage of the total amount that you have to pay each month. This is around 5%-10% of the outstanding balance, and it can vary across cards. If you pay the minimum amount due then you automatically slip into the interest rate cycle, and the interest will start accumulating on the remaining outstanding amount that is yet to be paid. If you miss the payment altogether, not managing to pay even the minimum amount, then there will be a non-payment charge that will be levied along with the interest. This means there is a double hit on this account.

Annual Fees and Other Charges

There are annual fees to be paid on the credit card, which represents an expense for you. These are generally waived on entry-level cards but are levied on premium credit cards. In addition, there are charges such as joining fees. Benefits offered by premium cards are much higher than entry-level cards. Hence, you should decide on the fees factor based on your requirements.

Credit Limit

Credit limit is decided after taking into consideration your income, your current job and position, your credit behavior among several other factors that are decided by the bank issuing a credit card. A credit limit is not fixed forever once it is decided, but it keeps changing over a period of time. Depending upon the developments, including your track record, the credit limit can be raised and this will give you a higher limit to spend. Also keep in mind that if you do not pay your credit card bill on time, there are chances of your credit limit being reduced.

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