How to select a credit card in India?

by Manshu on December 5, 2010

in Credit

This is yet another post from the Suggest a Topic page, and this time I am going to talk about how to select a credit card. Radhika had asked this question once quite early on as well, but I didn’t feel that I have anything really useful to say on it so never got around to writing the post.

However, searching online made me feel that in general this is an area on which not much has been written about in an Indian context. So, I thought I’d write this post and at least start off the discussion, and present you views on how I would go about searching for a credit card if I had to do it.

The first thing I did was to look at cash back credit cards in India, which give you one percent or two percent cash back every time you make a purchase, but unfortunately I couldn’t find any good cash back credit cards in India. Some of them have a high annual fee, others make you jump through too many hoops, and a lot of them have some sort of a limit on them which considerably reduce their appeal.

In the US, people with a good credit history can get a good cash back credit card which doesn’t have any annual fee and to me that’s the best kind of credit card.

Let’s see what you can look at in the absence of such a credit card.

No Annual fee

The first thing to keep in mind is that your credit card should have no annual charges. There are a lot of good credit cards without any fee, so there is no reason for you to go and get a credit card which has an annual fee.

I believe this to be true for most people, however there will be some folks out there who feel that the benefit of a particular credit card outweighs the annual fee, and if you have such a credit card in mind then that’s fine, but if you are just looking out for a new credit card, then I’d say look for one that doesn’t have any annual fee.

No Renewal Charges

Another fee I see with some credit cards is renewal fee that has to be paid at the end of every year. So obviously this is nothing but a credit card with an annual fee, but the annual fee has been waived off for the first year.

You may want keep away from such credit cards also.

Convenience to pay off your balance

If you get a credit card from your bank then you will probably be able to link the credit card with the bank account and pay off your credit card online, and that is a big convenience. Making it easy enough on yourself to pay off the balance will ensure that you don’t miss any payments because your check reached late or you were out of town or something else like that.

Keeping no balance is an extremely good financial habit, and I’ve written about how I myself got into a bit of a credit card issue early on, and you must do everything possible to keep your credit card balance zero, and the ease of paying it off is just one factor that adds to it.

What do you spend the most on?

In the absence of a cash back credit card the next best thing to do is to look for a credit card that has no annual fee, and has good reward points in the area where you spend the most.

For instance if you are working away from your home town, and visit home say thrice a year then probably a good chunk of your credit card spending in a year is on air travel, and you should look for a credit card that has got good reward points. On the other hand if you don’t expect a lot of air travel but drive a lot then a card that helps you get rewards on petrol purchase will be beneficial to you.

Selecting a Credit Card

Given the criteria above, say you want to select a credit card now, here is an example of what you could do.

Say you have a bank account with ICICI Bank, and travel a lot. In this case go to Rupee Times Compare a Credit Card section, and select the Issuer as ICICI, Reward as Airline, Annual Fee as Zero Annual Fee, and search for your options.

In this search I got only two results, and if I don’t travel a lot by those two airlines (Kingfisher and Singapore in this case) then I will have to broaden my search by going back, and removing the issuer from the criteria.

That shows up some more options and you can see if any of them are of any interest to you or not. If you are still not satisfied then take another category and do a little more research.

Eventually you should find something that is of interest to you, and can explore that option more.

Why am I ignoring Interest Rates?

Because they are so ridiculously high.

Paying interest on a credit card should really be the last thing you do, and is the worst kind of debt because it can easily snowball into a much larger number, and is generally spent on stuff that you can easily avoid.

While it is preferable to have a lower interest rate to a higher one, you should make all attempts to have your credit card balance zero.

There is really not a lot of science behind this, and it boils down to evaluating a lot of options, and choosing one that suits you the best. I hope this post can help you give some ideas on that, and as always comments are welcome.

Oh, and since we are on the topic, Ask Mr Credit Card, who is a prominent US credit card blogger did a guest post on OneMint early this year about silly ways of using a credit card, and I highly recommend you read that post.

{ 32 comments… read them below or add one }

Indian Thoughts December 5, 2010 at 10:22 pm

I prefer to use credit card only for its reward program but it was daunting. Finding a good reward credit card is actually daunting task in India. I anytime prefer my RBS(previously ABN) debit card for any shopping (other then petrol ofcourse). It has one the best rewards even better then most of the credit cards I know of.

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Manshu December 6, 2010 at 4:22 am

So this is a debit card, not a credit card? What are the rewards like? I’m a bit surprised to see a rewards program of a debit card surface up in a credit card discussion. Can you please tell us about the rewards a bit more?

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Indian Thoughts December 6, 2010 at 8:47 am

Yes I think I deviated from the topic. But my point was that for those who use credit card only to take advantage of reward program, I’ll suggest RBS debit card instead. I have a credit card bit I use it only for petrol because my debit card will charge me for that.
Its reward program is something like: 2 points for each Rs 100 spend. And 500 points = Rs 399 cash back.
On the other hand my credit card reward goes like this:
2 points for each Rs 100 spend. And 1700 points = 500 gift card for shoppers stop ( and other gift cards as well but all almost this expensive in terms of reward points.)

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Manshu December 6, 2010 at 9:41 am

I didn’t mean to say that you went off on a tangent or anything, just that I was a bit surprised by your observation that even a debit card can be used to get reasonably good rewards if you get the right one.

As you explained, that’s exactly what you are doing, so that really adds a new dimension to this discussion.

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abhishek gupta August 22, 2012 at 1:13 pm

have you checked indusind debit card…it gives you 2.5% cash back on swiping of above 40k and 2 % on 20k. plus no petrol surcharge…various other benefits too…revert if interested..

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Radhika December 6, 2010 at 12:05 am

Thanks Manshu. The point is to have no outstanding balance on credit card. All other factors are there only to make us spend more.

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Manshu December 6, 2010 at 4:25 am

Yeah that’s the big thing – to not have any balance at all. I think this has not become such a big issue in India yet, but it might be in the years to come, as more and more people just starting off on their jobs get their hands to a credit card, and start spending without thinking much about it.

A lot of personal finance blogs in the US have the sole purpose of writing about tackling debt, and some very successful blogs were started to document the blogger’s own journey to get out of debt, and reading those gives a perspective on how nasty the situation can become.

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Raja December 6, 2010 at 1:46 am

I find co-branded credit cards good for reimbursement of reward points.

Like earlier, i was using some plain credit cards but using the reward points meaningfully was always a challenge. Issues like not finding the right kind of items to reimburse rewards, early expiry of reward points etc.. most of the time meant the rewards remained unused.

Co-branded credit cards like the one i use from citi-shopper stop are easy in that regard. And now i almost always get 1-2 merchandise free in a year.

Regards
Raja

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Manshu December 6, 2010 at 4:26 am

So this gets you some reward points in Shopper’s stop that you can accumulate and buy stuff later?

How does that work….I mean in terms of reward points per cash spent, and then how is it redeemed? Thanks!

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Raja December 6, 2010 at 6:44 am

Right. So the reward system is the normal one, which gets accumulated when i make purchase etc.. i think it’s 1 reward point per 100/- spent on the card anywhere.I get to accumulate the points and redeem them at SS. Each reward point is worth Rs. 1/-. And unlike other reward system which require a fixed number of points before they can be redeemed against certain fixed items like that in case of i-mint etc…this one, i can reimburse even Re 1 against my purchases at SS. That works pretty good for me. Also SS gives the card holders a chance to be the only shoppers for the first 3 days before they open the annual discount sales to other customers πŸ™‚ I like that part too. it ensures one gets reasonably good stuff priced ok.

Regards
Raja

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Manshu December 6, 2010 at 8:42 am

Thanks Raja – this actually sounds like a very useful, and good card for Shopper’s Stop customers. I might even do a full review of this card.

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Loney December 6, 2010 at 5:53 am

Hi Manshu

I am happy that your blog is able to generate healthy discussion/debate on various matters of finance. Keep up the good work.

A debate on credit cards is one of the most essentials in the world of finance. Because, it is a LETHAL WEAPON in the hands of a person who doesnot manage his finances well because it could take a person into a DEBT TRAP.

EVERYONE MUST UNDERSTAND, A CREDIT CARD IS THE WORST WAY TO GET A CREDIT. (Even worse than a personal loan) since it comes at a HUGE cost. 42% p.a. (more or less)

Credit Card should be used only as a convenience. ALWAYS SPEND WITHIN YOUR MEANS. THIS IS THE WAY TO KEEP A GOOD FINANCIAL HEALTH.

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Manshu December 6, 2010 at 9:43 am

Hi Loney,

I appreciate your kind words, and it’s really because of helpful and knowledgeable people like you that the discussion has been so positive here.

I mean some of the things you have shared here, I had no idea about, so I learned a good deal from your comments.

Similarly I had no idea that you can actually get yourself a pretty decent rewards program like IT has mentioned above.

I am grateful to people like you who have shared their knowledge, and made this a positive platform for everyone. Thanks!!!

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Loney December 6, 2010 at 6:58 pm
Bharat December 10, 2010 at 7:17 pm

The DB Platinum that I use gives 1 point for Rs. 100 spent. But you can use the reward points that is 1 Rs. per point to settle your outstanding.

When the companies give lousy reward points, they sell stuff that they buy on cheap in bulk. This one gives Cash.

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Manshu December 11, 2010 at 5:33 pm

Thanks Bharat – but what’s the annual fee on this one?

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DJSays! December 13, 2010 at 2:40 am

This is good article and equal good are the comments. Have to check that RBS Debit Card and DB Platinum CC.

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Manshu December 13, 2010 at 7:32 am

Which ones do you use? Any good cards you came across?

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DJSays! December 27, 2010 at 1:16 am

I am currently using only HDFC Platinum Plus. I see that the rewards range of HDFC is limited.

ICICI has tie up with Imint so their offerings are better. I wish HDFC does that.

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Manshu December 28, 2010 at 8:28 am

Thank you for your comment.

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Atul December 24, 2010 at 3:07 am

Nice Informative article. Would like to add important point here regarding credit card points. One should see that credit card points do not expiry at all. For example I am having SBI Platinum CC and I was mis sold the product by saying CC points will never expire. What surprises me is that SBI has started doing it after 1 year and inspite of my requests they are deducting.

Adding more grief to the issue, I need to spend 50K more to earn enough points to redeem for gift/gift voucher before closure of CC account. What a irony?

Regarsd

Atul

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larry December 27, 2010 at 11:00 pm

i have ICICI Credit card; reason: to collect reward points. I encash the points for Gift voucher [shopper’s stop/west side etc].

Compelling reasons to go for credit card:
1) I buy only when i have cash for it in my savings ac/ . But use CC, so my money stays in savings and earns interest till CC bill due date arrives. I always pay my credit card in FULL each month which means 0% interest. + int. accrued on savings.
2) points accrued with each purchase, utility bill payment , booking etc [any tran. w/o service charge involved] helps me get agift voucher [ICICI rewards prog] a year.
3) builds credit history – CIBIL. With good credit behaviour my credit report looks nice.

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Manshu December 28, 2010 at 8:30 am

Thanks Larry – any pointers on how someone can get a CIBIL credit report?

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DJSays! December 29, 2010 at 2:53 am

Here is the link to order your CIBIL report: http://www.cibil.com/accesscredit.htm

There is a charge for the same.

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Gaurav Malik December 30, 2010 at 3:45 am

Hi,
I had ordered for a CIBIL report for my wife and self and there were quite a few errors eg my wife holds a Platinum HDFC CC which was not reported in the CIBIL Report. A loan I had closed two years back was reflecting outstanding in the report. When I contact CIBIL they told me to contact the bank as they provide all information to CIBIL. I had to write several letters/emails to the Credit Card and loan to update my CIBIL records. I guess atleast once a year it is good to keep check on such records. It was quite an effort but I think should help in the long run.
Regards

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Hari January 13, 2011 at 3:35 am

Important point is to ensure that you collect a No Dues/Clearance letter from the Credit Card/Loan processing Bank whenever you cancel your credit card or close your loans. This would act as your proof for any future issues/errors in the CIBIL report.

Regards

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DJSays! January 13, 2011 at 4:44 am

Good point. Thanks for pointing that out.

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Manshu January 13, 2011 at 7:20 am

Thanks for the tip Hari.

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manish June 9, 2012 at 10:04 pm

sir will u tell me more about reward points i mean how rewards points works?

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Manshu June 12, 2012 at 5:19 pm

When you buy something you get some points, and then the companies have a list of things that you can exchange the points for like exchange 1500 points for a pair of shoes, 5000 for a air ticket etc.

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Ramiz October 24, 2012 at 4:59 pm

Sir, I am in search of credit cards which fits my requirements. I am an engineer working in public limited company in Gujarat. My monthly salary is 20K. My soul purpose of buying credit cards is to make online payments and get maximum reward points.

My requirements are,
1. It should have minimum joining fees
2. It should have minimum interest rate
3. Bill payments should be easy with ebanking of BOB and SBI
4. 50000 Rs Limits or less

I request you to provide me some guideline by email [email protected]

Thank you in Advance.

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yogesh January 5, 2013 at 8:50 pm

CREDIT CARD WHICH IS ANNUL FEES FREE plz suggest the card name which usefull whole life

Reply

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