When used responsibly, a credit card can help you build a strong credit profile and save on your regular spends. However, choosing one from multiple options available may be a challenge, especially for young professionals with limited knowledge of credit cards.

Also read: Cards outstanding rise 2% in January, HDFC Bank crosses 2 crore cards-in-force

Before you begin shortlisting credit cards, the first step should be to understand how a credit card works. You must not consider it as ‘extra’ money, but instead take it is a means to borrow funds that need to be paid back timely.

Having basic knowledge of credit cards will help you make an informed decision, as you will be able to better understand and compare the benefits offered.

Check for eligibility

Not all card issuers offer credit cards to new-to-credit consumers and those who do, might only provide select entry-level cards.

Hence, if you have no credit history, chances are you would not be eligible for many cards.

While this holds true for most new-to-credit applicants, young individuals with higher income might have a wider choice of cards.

For salaried professionals who are looking for their first credit card, it is best to check the cards from the bank which holds their salary account or, where they have an existing relationship.

Understand your need

Identify if you need a card only for building credit or to enhance your savings on regular spends or a particular category of spends.

For credit building, an entry-level low-fee credit card with basic features and minimal eligibility requirements could be the right choice. If you do not qualify for any such card, a secured credit card could also serve the purpose.

Explore options

However, if you are looking to save a considerable amount through credit cards, you must compare multiple options and choose the one that best aligns with your spending preferences.

For instance, if you are a frequent traveller, a travel credit card can help you save on your trips in the form of extra rewards/air miles, complimentary lounge access at airports, etc.

Also read: RBI asks card networks to halt card-based business payments on KYC, fund-use concerns

Similarly, if you wish to save on your online spends, a card that offers a higher reward rate on online spends could be the right one for you. If you are loyal to a particular brand like Flipkart, Amazon, Yatra or EaseMyTrip, you could also go for cards co-branded with such platforms for substantial savings.

Narrow down on choice

Once you know why you need a credit card, the next step is to understand how different credit cards could cater to your requirement.

Credit cards can broadly be divided into two categories — rewards and cashback, based on the way they offer value-back.

Rewards credit cards provide reward points on your purchase, which can later be redeemed to avail discount vouchers, merchandise or converted into air miles or cash credit.

On the other hand, cashback credit cards mostly offer a percentage of your spending back into your card account. Ask yourself how you wish to get value-back.

Several other terms and conditions have a role to play in determining the overall value that the card offers. For example, you would want to know how much the card charges as joining/annual fee, what the reward points are worth, whether you are required to meet certain spend threshold to avail benefits, etc. Asking the right questions will help you filter the options as per your needs.

How to apply

Nowadays, you can apply for a credit card through the issuer’s website or through online marketplaces where you can compare options and choose a suitable one.

For most users, the first credit card is usually an entry-level card but it paves the way for you to establish credit and qualify for better cards in future.

A good credit score also makes it easier for you to avail loans to meet your life goals like buying a house. Hence, it is important to begin your credit journey as early as possible.

Also read: How secured credit cards help build credit score

Get your first credit card, use it responsibly —clear the dues on time and maintain a healthy credit utilisation ratio (CUR). When you are confident, move on to better cards with more targeted benefits that will not only help you save more, but also improve your credit score, with disciplined usage.

(The author is head of Credit Cards Business, Paisabazaar)

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