Credit cards have become a modern and ingenious mode to make payments for goods and services. A credit card can help you to enhance your credit score if you spend wisely and make your full payment before the due date.
My Life Story with Credit Cards:
I am an entrepreneur. Started multiple companies and failed, only a couple succeeded, but I learned a lot along the way. The primary reason is I did not understand money and how to save and spend it.
During my years in Indian Startup Hub, aka Bangalore, I had a startup with around 5-8 people which I was very proud of. During one of those times as a young bachelor, a good lady in the bank sweet-talked me into taking a credit card. Being desperate, young, and wanting to impress, how could I refuse the dame.
The devil is always disguised as your weakness. The lord, my savior, could only have prevented, alas. The 1st few months were a joy, and my spending endowment increased. I shopped happily. Bought the latest Apple MacBook Air, planned trips to the pubs. Threw a party with the money I didn’t have. I did pay it all, but with my company’s money 🙁
And as the days went by, I used my Credit card for international importing too(Amazon drop shipping). Though I enjoyed a few privileges, the frivolous Spending never stopped. The Bills added up till I could not pay up anymore. At the same time business took a hit.
So I had lakhs worth of Credit card bills and no way to requite. Started paying the minimum amount. Over the next year, I realized the principal amount was hardly dented. This is the DEBT Trap that people fall into, and I feel bad to say I am no exception. Also, I missed a Minimum for a couple of months due to complications, and it ended up in my CIBIL Score. From a healthy 880, it dropped to 650ish.
Thankfully I have recovered over the years, but that missed payment back then still creates quandaries for my other businesses as I get a lower valuation for loans.
I messed up royally but learned over the years.
The benefits I enjoyed:
- Could use a credit card to import products for my business.
- Used it to import from Alibaba and sell on Amazon as a seller.
- It gave me access to the emergency fund.
- Got me access to Airport Lounges.
- Points gave me some free movie tickets among other perks.
Downside: was I let it control my life and got royally screwed. My Credit score dropped and had lakhs worth of card debt.
Please don’t take a Credit Card:
1) If you are impulsive.
2) If you cannot plan your expenses well.
3) If you like to purchase expensive gifts without thinking.
4) If you like shiny stuff(Latest Gadgets and all).
Think twice before you swipe.
1) A Sureshot way to get into Money Debt Trap(Among highest interest Rates(20-26%).
2) You have access to money that’s usually higher than what you have in cash so can easily overspend.
3) You are dependent and have parents and others taking care of your expenses.
4) You don’t have the cash to pay back the credit you are taking.
5) You don’t have financial Discipline.
6) You don’t understand Credit Scores. Credit cards have a devastating effect on your credit history and credit score.
7) If your credit card does not offer a side benefit.
Why Use Credit Card then:
- For a person starting early in their 20s with no job, it builds credit history and good credit scores which is very important for taking bigger loans for future business down the line.
- Through the credit card reward system, it gives you admittance to points which can be redeemed for fuels or cash or gadgets and holidays too. E.g., Axis gives you access to Amazon and Flipkart Gift Voucher for points, holidays, etc.)
- It gives you access to Emergency money.
- Generally, only Credit Cards are accessible internationally.
- Improves Credit score if you don’t have any. Shows you are creditworthy if you use and pay regularly.
- Cred app gives you cashback for paying back your bill.
- Many other plots like discounts in restaurants and hotels
- International and National Airport Lounge access.
- Free movie tickets or discounted movie tickets.
- Bajaj Finance and few others have interest free EMI Offers. You can buy your next iPhone and pay it interest-free over the years.
So if you can resist urges and are smart with money. You can get a card with No Credit History too.
So the next questions are
- How to get a credit card.
- How to choose the right card for your needs.
- How to use it to maximize profit.
So assuming we are talking about beginners.
Generally, a Credit Card requires a Credit Score(CIBIL, CRIF, Experian, Equifax). CIBIL being most commonly used. You can check your credit score for free on sites like bank bazaar and other similar finance websites but be ready for spam in return. What if you don’t have a Credit Score or have less Credit Score.
You are young and don’t have a job but a decent source of income from side hustling. Even, if you have saved some money, you can’t go for a regular unsecured Credit Card. But there is hope 🙂
Enter Secured Credit Card against Fixed Deposit. Many banks in India offer Credit Cards without any check against Fixed Deposit.
There are three significant advantages of FD :
- Your money otherwise saved in a bank in a regular account is getting an interest of 5-7 %.
- You do not need a job or a credit score. Many banks give it to you up to 80% of the FD amount.
- You can get a Credit Card with a limit of 80% and can be any amount you are comfortable with (Can run-up to a few lakhs).
Now, let’s Compare Different Options available in India
- SBI Unnati Credit Card.
- ICICI Coral debit card and instant platinum debit card
- Axis Insta Easy Credit Card
- Kotak Silk Inspire Credit Card
- Bank of Baroda among Others.
Things to keep in mind comparing Credit Card:
- Late Payment Fee and hidden charges
- Decide your primary purpose( shopping, travel, credit building)
- Interest-Free Period
Some of the Tips to Maximise Profit:
- Do your regular home shopping and grocery and online shopping from a credit card, but only for the amount you can payback.
- Get a card suited to your style. (Many offer free tickets on particular spend, Plan your monthly expense to meet the spend).
- Pay your Credit Card bill with Cred. Cred offers you fantastic cashbacks.
- There is an Interest-Free Period of 18-50 Days—research on it. Payback the entire amount before, and don’t wait for the bill.
- Use the Points earned for Cash Back or for Amazon and Flipkart Voucher or something you like.
- Credit Cards Offer a Variety of Discounts in Restaurants and Hotels. Book accordingly.
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