A decade ago, credit cards were seen as a luxury, accessible only to a select few due to stringent eligibility criteria. However, the landscape has dramatically changed. In 2011, India had only 2 crore credit cards in circulation. By 2024, this number has surged to 10 crore.
In 2023 alone, 16.71 million new credit cards were issued, surpassing the 12.24 million cards issued in 2022. Over the past five years, the number of credit cards has grown by nearly 77%, from 55.53 million in December 2019.
If you’re looking to get your first credit card to enhance convenience and financial freedom, this guide is for you. For young adults, a credit card offers flexibility and the chance to build a strong credit history. Here’s a guide on how to apply for a credit card for the first time.
Understanding Credit Cards: How They Work
Before applying, it’s important to understand how credit cards function. A credit card is a plastic card issued by a bank or financial institution, providing access to a pre-approved credit limit for purchases and services. The credit must be repaid within a specified period.
A credit card operates similarly to a loan, but instead of receiving cash upfront, you get a set credit limit. For example, if you have a credit card with a ₹50,000 limit and you buy a smartphone for ₹20,000, you can either repay the ₹20,000 within the next billing cycle to avoid interest or pay it over time with interest.
You’ll receive a monthly statement detailing your transactions and the total amount due. Paying your bills on time helps avoid interest charges and maintain a good credit score.
Checking Your Eligibility
To apply for a credit card in India, you typically need to meet the following criteria:
1. Age: You must be at least 18 years old, though some banks require a minimum age of 21.
2. Income: A stable income is required, with a minimum monthly income varying from ₹15,000 to ₹25,000 depending on the bank.
3. Credit Score: A good credit score, generally 750 or above, improves your chances of approval.
4. Nationality: You must be an Indian citizen or a Non-Resident Indian (NRI).
Choosing the Right Credit Card
With many options available, choose a credit card that fits your needs and spending habits. Consider the following factors:
1. Fees: Look for cards with low or no annual fees. Some banks offer lifetime free credit cards, ideal for beginners.
2. Rewards: Select a card offering rewards that match your lifestyle, such as cashback or points for online shopping.
3. Eligibility: Ensure you meet the criteria for the card you’re interested in. Some banks offer cards tailored for students or young professionals.
4. Brand: Opt for well-established banks known for good customer service and security.
Preparing the Required Documents
When applying, you’ll need to submit certain documents:
• Identity Proof: Aadhaar Card, PAN Card, Passport, Voter ID, or Driving License.
• Address Proof: Aadhaar Card, Passport, Voter ID, Driving License, Utility Bills, or Rental Agreement.
• Income Proof: Salary Slips (last 3 months), Bank Statements (last 3 months), or Income Tax Returns.
• Photographs: Recent passport-size photos.
Applying for Your First Credit Card
Once you’ve chosen the right card and gathered the necessary documents, follow these steps:
1. Visit the bank’s website or nearest branch to get the application form.
2. Fill out the form accurately with your personal, income, and employment details.
3. Submit the form along with the required documents.
4. The bank will verify your details and assess your eligibility.
5. If approved, the bank will send your new credit card within a few days.
6. Activate the card as per the bank’s instructions.
7. Set a strong PIN and sign on the back of the card.
Using Your Credit Card Responsibly
To build a positive credit history and avoid debt, follow these tips:
• Set a budget: Spend within your means and avoid overspending.
• Pay on time: Always pay your bills on or before the due date to avoid fees and interest.
• Pay in full: Try to pay your balance in full each month to avoid interest.
• Monitor statements: Regularly check your statements for any unauthorized transactions.
• Avoid cash advances: These often come with higher interest rates and fees.
• Keep utilization low: Use no more than 30% of your credit limit.
Building a Good Credit Score
Your credit card usage significantly impacts your credit score. To build a good score:
1. Make timely payments: This is crucial for a good credit score.
2. Maintain low credit utilization: Keep balances low relative to your credit limit.
3. Limit new credit applications: Avoid applying for multiple cards simultaneously.
4. Monitor your credit report: Check for errors or discrepancies regularly.
Pros and Cons
Pros:
1. Large Purchases: Spread the cost over several months.
2. Safety and Convenience: Safer than carrying cash and widely accepted.
3. Credit Score Improvement: Helps build a good credit score with regular use and timely payments.
4. Rewards and Offers: Cashback, lower interest rates, and other perks.
Cons:
1. Debt Accumulation: Risk of substantial debt if not managed carefully.
2. Impulse Buying: May encourage unnecessary spending.
3. Negative Impact on Credit Score: Missing payments can harm your credit score.
4. Interest Costs: Balances carried over month to month can accumulate significant interest.
Conclusion
Getting your first credit card in India is a step towards financial independence. By understanding the application process, choosing the right card, and using it responsibly, you can enjoy convenient transactions and build a strong financial foundation. Always pay your bills on time, keep your balances low, and regularly monitor your credit score to make the most of your credit card.