As Credit Card Spending Rises, Here’s What New Customers Need to Know
Credit cards are all the rage. According to the latest data from the Reserve Bank of India, there were nearly 77 million credit cards in circulation in India as of May 2022. This is a big jump of 23% from May 2021 and more 100% compared to May 2018 figures.
Credit card spending is also increasing. As of May 2022, the average credit card transaction in India was Rs. 4782 including POS, online and ATM spend. This is also up by 23% since May 2021, when the average transaction was Rs. 3,871. Additionally, we are seeing above-average spending online. While the overall average per transaction is Rs. 4782, the average online spend according to RBI data for May 2022 is Rs. 6170.
BankBazaar customers also show a propensity for cards that reward online spending. This is not surprising since we are coming out of a pandemic. People now prefer to transact from the safety of their homes.
This boom in credit card spending would undoubtedly spawn customers new to credit or looking to take out their first credit card. They must learn to manage credit carefully. Here are some thoughts to that end.
How to Compare Options
RBI data shows that after two slow years in 2020 and 2021, credit card disbursements are accelerating again. Trends are also reflected on BankBazaar. We are seeing a surge in credit card disbursements, with a 95% increase in the first quarter year-on-year. Credit cards are readily available as lenders’ credit policies have relaxed. There are also fintech players in the market offering attractive propositions to new credit customers. But in this huge universe of hundreds of cards, what should a customer buy?
Customers can carefully choose from all of these options. The card that works best for them is one that helps them either fund the lifestyle they are in or access the lifestyle they want. For example, if you prefer online shopping, get a card that helps you get accelerated rewards in this segment. If you spend a lot of fuel or travel frequently, get a card that gives you fuel rewards, lounge access or travel rewards. If you’re looking to buy home appliances at no cost, get a card that helps you buy your favorite electronic brands. With this, you will be able to narrow down the cards that fit your lifestyle. Avoid cards that don’t hit what you need.
Timely payment is important
It is the most important. Everything you borrow must be repaid. Any dues on your credit card should ideally be paid within the same billing cycle. Postponing it or making minimum payments will attract interest. Failure to make minimum payments will result in penalties. People use credit cards for all sorts of things – traveling abroad, buying fuel, high-end purchases, or even grocery shopping. The goal is to minimize interest on some of these transactions, no matter how attractive the rewards. If, for example, you were paying interest on your groceries, you are effectively making your groceries expensive.
Use widely available digital payment tools to ensure timely and complete repayment of credit card debt. You can also automate these payments through netbanking to ensure you don’t miss the deadline.
Spend within limits and monitor your credit score
You may have a large credit card spending limit many times your monthly income. However, it is optimal to stay within 30% of this limit. This will make it easier for you to refund your dues. It will also help you maintain a low credit utilization rate. It’s good for your credit score. If your credit score remains above 750, you can easily get new loans. But if your spending gets out of control and you fail to repay your card’s dues, your score will plummet. Budgeting is essential, as is sticking to the budget.
When it comes to your credit health, it’s important to keep an eye on your credit score. If you have outstanding debt, a monthly check of your credit score is a good thing. This will help you understand how your credit usage shapes your monthly score. If at any point your credit habits deteriorate, your rating will drop. This should be the shock you need to correct your credit habits. You need to stay above 750 if you want to get the best loan deals.
Adopt safe digital habits
Paperless banking has become a daily reality – an idea accelerated by the pandemic. You can now access credit from the remotest parts of this country. Locations previously unserved by bank branches now have customers who can access credit by completing their KYC completely digitally.
With so many online attractions fueling the rush for credit cards and digital payments, it’s worth mentioning that you need to adopt safe digital habits. There are basic security measures like not sharing your card number, CVV, and expiration date where you shouldn’t, and making sure you have physical control of your card at all times. There are also second-level security measures like tokenization or using your app to limit your spending. Take a moment to educate yourself on how to use your card securely.
Getting a card that supports your lifestyle, timely debt payments, budgeted usage, digital security, and monitoring your credit score will help you get the most out of your transactions.
(The author is CEO, BankBazaar.com)