8 check points before you get that credit card

When you take a loan or invest money, you ask many questions and cover all bases before selecting a product. But what about credit cards: Do you research just as well, or do you pick the most advertised card?

For starters, can it really hurt to get just any credit card? Absolutely. Use a new card the wrong way, or pick the wrong card for you – and credit can soon become debt.

So whether you’re getting your first credit card or adding more plastic to your wallet – Here are eight questions you want answered before you fill out the form:

#1: Why am I applying?

Your reasons could be many: You don’t like handling too much cash, want to pay on installment basis, or you’re in it for the Marhaba lounge access. Consider whether you can prudently use the card while availing these benefits. At the end of the day, a credit card is simply money lent out at a high rate of interest (up to 40% flat per year!) compared to a personal loan (up to 12% flat per year for non-salary transfer).

#2: What rewards do I want?

What’s the card for: Bills, groceries, school fees? Look for one that gives you cashback on these spends. If you’re a movie buff, pick cinema cards. And if you fly a lot, go for a competitive air miles card.

Ask about the conditions required to earn these rewards. How are the miles calculated, is the redemption process cumbersome, is there a deadline? A quick call to customer service will help.

#3: What credit limit do I need?

Usually, a multiple of 2 to 4 times your salary is your credit limit. It is important to understand your liabilities and your monthly expenses when accepting a limit, but ensure that the limit covers your needs. With the credit bureau coming in, any over utilization of your card is seen as negative.

#4: How does the APR on my chosen card compare with others?

The annual percentage rate is the interest applied per year for money borrowed on the card. In the UAE, the APR starts from around 36% p.a and goes up to 40% p.a. If you pay off your entire outstanding amount every month, you can avoid accruing interest altogether.

#5: What’s the annual fee? Do the rewards compensate for it?

Cards that offer cashback, miles or other rewards usually have an annual fee (ranges from AED 200 to AED 2,000 p.a.). Look at your past spending trends and judge whether the cost-to-benefit ratio is favorable.

There are many cards that have zero annual fees as well, but don’t forget to ask – Is this an introductory offer or is the card free for life?

#6: Do the payment dates suit me?

Banks have payment date options for card bills. See if you can get one post salary date. You should be able to select this on the application form.

#7: Any impact on my credit report?

If you pay your card bills late, or go over-limit, your credit score will drop. And if you have many cards, you could affect your loan eligibility — When calculating your debt burden ratio (for deciding how much money to lend you) the bank will add 5% of the limit of each card you have, as your monthly obligation. So cards that you don’t use are unnecessarily adding to your debt burden calculation.