If you are looking to choose credit cards in India, you will be overwhelmed by the options available. Firstly, there are around 30 banks offering credit cards and each bank has several variants. For eg. SBI alone has 42 different credit cards variant to offer.
Further, there’s no one-size-fits-all credit card, so the best credit card for you may differ from the best credit card for your childhood friend. However, below are a few steps that may help you narrow down your options when looking to choose a credit card.
Understand your spending pattern
Before you choose a credit card, it is important to understand your spending pattern. The best way to do it is to tabulate your spends of the last 12-18 months in an excel sheet and categorise them into broad categories.
I would suggest the following categories – Dining, Fuel, Groceries, Insurance, Rent payment, Shopping, Travel, Utility, Wallet and lastly miscellaneous.
Further, I will also try to make a note of any upcoming large spend in the next 12 months, for eg. Any upcoming travel or vacation, purchase of new furniture, an upcoming wedding in the family thus will need to buy new clothes etc.
The above exercise goes a long way in choosing a credit card. It gives you an idea about how much you spend on credit cards in a year and an idea of the categories where you spend the most. Thus enabling you to choose the credit card that offers maximum benefits.
Identify your reward preference
Once the above exercise is over, you should decide on the kind of reward you would prefer. Credit card rewards are typically classified in 3 categories – Airmiles, cashback and reward points.
Credit cards that offer rewards in the form of air miles are generally co-branded credit cards with an airline. The air miles earned thru these credit cards are redeemed on respective or partner airlines for flight tickets or upgrades. Read about best air miles credit cards in India here.
Cashback is a straightforward reward category in which credit cards let you earn a certain percentage of cash based on your spending. Typically, the cashback rate would vary between 0.5%-1.5% depending on the card. Thus, if your card has a 1% cashback rate, you will get 1 rupee for every 100 spend.
This reward category is best suited for people who are not into points and miles game. Further, the cashback cards are most suited for people who don’t have high spends on credit cards.
The last category of reward is very generic, where the credit card companies offer reward points based on spends. These reward points, in turn, can be used as an alternate currency on the bank’s website to make travel bookings or buy stuff from their catalogue. That’s not all, rewards points may be converted into statement credit just like cashback cards or into air miles of your favourite airlines.
Pro Tip: 1 reward point need not be equal to 1 rupee. Every credit card has a different conversion rate. Thus, check the same before deciding on a credit card.
I generally prefer reward points, as they offer more flexibility. For eg. Last year I used my reward points on Citi Premiermiles and Yes First Preferred card for my Singapore flight and hotel bookings. Earlier this year, I used my Amex MRCC reward points for statement credit, as I didn’t have any immediate travel plans.
How to choose the right credit card?
Now that you have an idea, about your annual spends and the kind of rewards you want; you should be able to choose a credit card that suits your needs.
Few pointers on how to choose a credit card
- Look for credit cards that give reward points in the top 2-3 categories where you spend. One may even have one card per spend category to maximise reward rate if you are a high spender.
- Try to find cards that give accelerated reward points in those categories. Eg. SBI Prime give 5x reward points on utilities and insurance if paid via standing instructions, HDFC Diners/Infinia gives 10x/5x or 5% (depending on variant) on e-commerce, flight, hotel and train bookings, Amex gives 5x/3x/2x through its reward multiplier program.
- As mentioned earlier, 1 reward point need not be equal to 1 rupee. Check the same to arrive at the reward rate in Rupee terms. Same goes for airline loyalty programs, not all air miles are equal.
- Cards with annual fees can be really rewarding if used wisely. Therefore, don’t shy away from fee-based credit cards. Read how I saved more than 1 lakh using Citi Premiermiles.
Below are a few of my suggestions.
Credit cards overall annual spends of less than 2 lakhs
- As far as possible choose free-for-life credit cards or ones that have a low threshold for the fee waiver. Have just 1 or 2 credit cards as your annual spends are very limited.
- While one can choose credit cards from the cashback and reward points category, I suggest avoiding the air miles credit cards.
- As your spends increases, start looking for better rewarding credit cards.
- Few preferred cards would be SBI Simply Click, ICICI Amazon Pay credit card, SBI Simply Save, Axis Flipkart, Paytm First credit card, Kotak 811 #DreamDifferent etc
– Credit cards for annual spends of 2-8 lakhs
- Here, you may have a card where annual fee is applicable. Additionally, you may keep a couple of free-for-life cards or low threshold for fee waiver cards, but those are primarily to take advantage of offers from time to time.
- Have a designated primary card that will be used everywhere as the first choice. This card will be the one with an annual fee. The designated primary card will be the one that gives you reward points in your high spending categories.
- Preferred cards would be SBI Prime, Amex Platinum Travel, SCB Ultimate, HDFC Diners Privilege, HDFC Regalia, SBI Club Vistara, Axis Bank Air Vistara Platinum etc.
Credit card for annual spends of above 8 lakh
- If you are spending more than 8lakhs on credit cards, you should look for premium and super-premium credit cards. Here you may have as many fee-paying cards.
- Preferred cards in this space would be HDFC Infinia, HDFC Diners Black, SBI Club Vistara Prime, Axis Bank Air Vistara Signature, Axis Bank Vistara Infinite.
I will soon write an article on the credit cards I currently hold and my strategy to get maximum benefits from them. In the meantime, do let me know how do you maximise the reward rate on your credit cards.