The Ultimate Credit Card Guide

Carrying cash at times isn't always practical. A credit card offers an easy and secure way to pay without affecting your monthly budget or dipping into your savings. Plus, with options like converting transactions into EMI, you can spread out the cost over time. It makes any purchase more manageable. Using your credit card further helps you build a strong CIBIL score and earn rewards, adding value to every swipe.

What is a credit card?

A credit card allows you to borrow funds for an interest-free period while also rewarding your spends. The understanding is that you will have to repay the borrowed amount within a specified period. Think of it as a mini loan from your bank when you don't have enough balance in your bank account. The best part is that, unlike traditional loans that involve a long process, a credit card gives you immediate access to funds. Plus, you get immense flexibility while paying credit card bills.

However, remember that there will be a limit to how much you can borrow using a credit card. This limit is determined by several factors, such as your age, location, past loans, monthly income, employment status, and CIBIL score. Also, you will receive a statement each month, listing the payments you have made using the card. It will also tell you how much you need to repay. You can pay the entire amount in one go by the due date. If that is not possible, make the minimum payment and carry over the remaining balance to the next month. However, if you carry over the balance, interest charges will be applicable.

Owning a credit card offers numerous advantages. However, before you apply for a credit card online, understand what a credit card is, its features, types and the eligibility criteria.

Types of credit cards in India

You can choose from multiple types of credit cards in India. Different cards offer different features and benefits, such as reward points, insurance, lower interest rates and an interest-free period of up to 48 days.

Basic credit cards

This is the most common card. Although they come without additional perks, they are beginner friendly. These lifetime free credit cards can be a good way to build your credit profile. The features of these cards include simple terms and conditions, and perks like fuel surcharge waivers.

Premium credit cards

These are perfect for upgrading your basic credit cards. They offer lifestyle-related benefits, such as free lounge access at airports. Premium credit cards often provide better exclusive benefits, which depend on the provider.

Super premium credit cards

These credit cards are meant to offer you luxurious privileges. They are designed to match your lifestyle needs. Some features include free access to premium services, unlimited lounge access, fine dining discounts and more. They are often provided on an invitation-only basis. They usually tend to have high annual fees. Though the fees may seem high, the benefits often outweigh the cost.

Co-branded credit cards

These credit cards are partnerships between a business (like an airline or retailer) and the credit card issuer. These cards offer exclusive perks such as rewards, discounts or points that you can use with the affiliated brand. Some co-branded cards are open-loop, meaning they can be used anywhere, while others are restricted to specific stores.

Rewards credit cards

Some cards offer reward points for spending a minimum amount. For example, you might get one reward point for every ₹500 you spend using a credit card online. These points get accumulated, and then you can redeem them in various ways, such as cash, credit card bill payments, gift vouchers or discounts at select merchants. The more points you accumulate, the bigger the rewards. You might even get bonus points for spending above a certain amount.

Cashback credit cards

When you pay bills or shop using this card, you get a percentage of the money spent as cashback. Cashbacks are usually offered on specific categories of spending. They are offered in the form of rewards. Some issuers also let you settle your outstanding balance with the earned rewards. So, check the terms and conditions of the cashback before choosing your card.

Secured credit cards

The credit limit on most cards is determined by your monthly income and credit score. However, secured credit cards don't need a minimum credit score or income because they are offered against collateral. For example, you can get a secure card against your fixed deposit with the same bank. When you choose a secured credit card against your FD, you get a credit limit of up to 90% of the value of the FD. Plus, there are no to minimal joining and annual maintenance fees.

Travel credit cards

This card offers reward points for buying flight tickets and booking travel packages. These points can be collected and redeemed for flight tickets and more. Other benefits of these cards include travel insurance, free access to domestic or international lounges and more.

Lifestyle credit cards

A lifestyle credit card is all about matching your spending with perks that suit your daily life. These cards often offer rewards in categories like dining, shopping, entertainment and travel. This makes them great for frequent shoppers or travellers looking for a little extra value with each swipe.

Eligibility criteria to apply for a credit card

Credit cards are easy to apply for online and have simple eligibility criteria, such as:

• You must be an Indian citizen aged 18 or above.
• You can be a salaried professional or self-employed.
• You should have a fixed or predictable source of income.
• Some cards require a minimum credit score. You can check the requirements before applying.

Documents required

When you apply for a credit card, online or offline, you also need to submit some documents to verify your information. These include:

• Identity proof (Aadhaar card, passport or voter ID and PAN card)
• Address proof (Aadhaar Card, passport, voter ID, telephone bill or electricity bill)
• Proof of income (Income tax returns for the last 3 years, bank statement for the past 3 months, or salary slip for the past 3 months)

Benefits of using a credit card

The main advantage of using credit cards is the interest free credit period they offer. This allows you to make purchases without immediately paying interest on the amount spent. The period typically lasts between 20 to 50 days, depending on the billing cycle of your credit card. During this time, you can repay the full amount without incurring any interest charges.

Credit cards are useful for managing short-term expenses, as they give you the flexibility to defer payments while still maintaining liquidity. However, it's important to clear the dues within this period to avoid interest charges or late fees.

The other major benefits include:

• Ease of application, since you can apply for a credit card online in minutes. The card will be delivered to your doorstep if it's a physical card, but if it is a virtual credit card, it will be issued in minutes.
• Access credit quickly without any additional paperwork. You also don't need to worry about interest rates because most cards offer an interest-free repayment period.
• Make secure transactions with credit cards. If it is lost, stolen or misused, you can inform the bank to block the card immediately. This way you can prevent any further unauthorised transactions.
• Flexibility of paying credit card bills. If you cannot repay the entire amount in one go, you can pay the minimum amount before the due date and avoid any penalties.
• Build a good credit score. When you pay your credit card bills on time, it creates a positive financial history. This increases your credit score, which will be very helpful when you apply for a large loan, such as a car or home loan.
• Rewards and cashback are possibly the most attractive features of these cards.

Now that you know what a credit card is and the meaning of owning one, look at your financial needs and goals to make an informed choice. For instance, if you wish to build your credit score, you can easily get a secured credit card against your FD and start building a good financial track record. On the other hand, if you travel frequently, look for a card that gives rewards every time you spend on flight tickets or online hotel bookings.

Do you really need a credit card?

Credit cards are a useful financial tool that can benefit almost everybody. Firstly, a credit card is one of the most effective ways to strengthen your credit score. These cards are easy to obtain and can help during a financial emergency. Young adults can use it to start building their financial track record early and learn to use money responsibly.

If you already have a good CIBIL score, the card can offer many perks. For example, you could get cashback or rewards cards, so you can save while shopping. Frequent travellers can get benefits from a travel card, which gives airport lounge access and discounts on flight bookings.

There also are cards meant specifically for businesses called corporate credit cards. These cards offer similar benefits to personal cards, while making business transactions easy. Just like other cards, corporate credit cards come with fraud protection, which is very useful to protect your business finances.

How to choose a suitable credit card

When choosing a credit card, focus on what suits your needs. It's important to consider factors like benefits or fees to find the right option. The card should be suited to your financial needs and goals. Here are some things to keep in mind to make an informed choice.

• Understand how you usually spend money. Do you have enough left at the end of the month for sudden large expenses?
• Think of your financial goals. Do you really want to break an FD or spend your savings on an emergency? With a credit card, you can access money immediately and repay it when you have the cash. You can also repay it in affordable installments.
• How do you want to use the card? Will it help you build your credit score? Are you going to use it to earn discounts on frequent travel? Will it help with business transactions? The way you intend to use it will determine which features will suit you most.
• Know your CIBIL score. This way, you will understand which cards you are eligible for. If you are just starting your financial journey, choose a secured card that doesn't need a very high CIBIL score.
• Check your spending habits. Which category of products or services do you spend the most on? If you see high expenses related to petrol, look for a card that gives you discounts on fuel purchases.
• Learn about the joining and annual fees. Some cards that offer numerous perks also have high fees. There could also be cards with excellent rewards but very high interest rates when you carry forward a balance.

Doing your research well before deciding is the best way to choose the most suitable card. Your research will also tell you which credit card is easiest to apply for online.

FAQs

What are the benefits of using a credit card in India?

The major benefits include:

• Quick access to short-term credit with an interest-free period for repayment.
• Helps build a good financial history and strong credit score.
• Value-added perks, such as free access to airport lounges, dining discounts, etc.
• Reward points that can be redeemed for a variety of products and services.
• Cashback on spending via the card.
• Safe means of making payments.

How do secured credit cards work?

Secured credit cards are offered against collateral, such as a fixed deposit. This means that your credit history or score does not matter. These cards come with low fees and can be used to make any type of payment. Some even offer reward points and cashback. If you wish to improve your credit score, this could be a good choice.

Which type of credit card is the best for me?

There is no one-size-fits-all card. It all depends on your financial goals and needs. For example, if you shop online regularly, you can choose a rewards or cashback card. If you're worried about paying high fees, choose a basic card or a lifetime free credit card, which comes with no or minimal fees.

This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.