Best No Annual Fee Credit Cards in India

WHAT DOES NO ANNUAL FEE MEAN?

Let’s first understand the annual fee on a credit card. The annual fee is the amount you are asked to pay when you hold the card and enjoy the benefits offered by the card issuer. This annual fee is like a membership fee you pay when you use your Gym or Resort. For the time you use the facility and enjoy the benefits you pay a membership fee, similarly, issuers charge annual fees to their customers. The main reason an issuer charges an annual fee is to provide exclusive benefits to its cardholders.

As now you understand annual fees on credit cards and why issuers charge fees for using their credit cards, the next question is to find if there are any credit cards that are free to hold and use. To use a credit card with no annual fee, you won’t have to worry about budgeting the annual fee. Also is it easy if you choose the right card to recoup the amount you pay for the yearly fee of a credit card. While there are always free to use cards, some issuers offer certain cards free for the first year and charge you for the subsequent years. On some credit cards your yearly renewal fee is waived if you spend a certain amount during the calendar year.

No annual fee doesn’t mean that these credit cards do not provide any benefits, they offer decent benefits and are recommended for first-time users, and for the purposes of building your credit history. Sometimes you can enjoy up to 1.5 to 2 times more benefits when you pay a nominal affordable annual fee.

ARE THERE DIFFERENT KINDS OF NO ANNUAL FEE CREDIT CARDS?

There are many credit cards that do not charge an annual fee and offer benefits in a specific category, so based on your spending habits you can get a travel card with no-annual-fee or a shopping card with no-annual-fee. Here is a list of credit cards that are free to hold and use.

Cash-back credit cards: The SBI Ola Money Credit Card provides a solid 7% cashback rewards on Ola rides with no annual fee and charges a fee from the second year onwards, and the renewal fee can be waived if you spend ₹1 Lakh in any calendar year. This card offers a very good burn rate, paying ₹1 for every reward point.

Travel credit cards: HSBC Visa Platinum Credit Card gives 6 points on hotel stays for every ₹150 you spend. One unique benefit this card offers every new cardholder is 10% cashback for the first 90 days. In addition to being a very good travel card, HSBC Visa Platinum credit card offers a BookMyShow voucher worth ₹500 on spending over ₹50,000 in a calendar month. The accumulated reward points on this travel card can be redeemed as Singapore Airlines Air Miles using which you can buy your future tickets or upgrade your travel class.

Reward credit cards: Amazon Pay ICICI Credit Card gives 3% cashback for anyone on their purchases on the Amazon.in website. Exclusively for Amazon Prime customers this card offers an additional 2% more cashback making a total of whooping 5% cash back rewards on your online shopping giving you a 5% discount on every product you buy. One caveat is that this credit card is not for everyone and by invitation only. There is no cap, upper limit on the rewards earned from this card with no expiry date on your accumulated earnings.

Fuel credit cards: HDFC Bank MoneyBack Card gives 4 points for every ₹150 you spend online and 1% surcharge waived off on fuel transactions. There is no annual fee for the first year and the HDFC charges a ₹500 fee from the second year onwards. The burn rate for these points is you get ₹20 when you redeem every 100 points.

Based on your spending habits and specific needs, it is a good idea to do research about no-annual-fee cards in the required specific category. Spending time on research to find the right card is worth it as some credit cards offer amazing rewards rates, very good welcome bonuses, and perks. Always do the math.

DOES PAYING AN ANNUAL FEE ON A CREDIT CARD EVER WORTH IT?

As you know that every coin has two sides, the answer to this question can vary depending on which side you are looking from. Annual fee cards aren’t for everyone, but sometimes it can be double the worth to pay and own a card. Based on your needs choose two credit cards, one free card, and one that has an annual fee in the same category and do the math yourself to find if paying an annual fee is worth it. By evaluating these two cards on earn rate and burn rate based on your monthly spending you can pick the right side of the coin. For example if no-annual-fee rewards you ₹5,000 for your spendings in a year and the second card with an annual fee offers you ₹10,000 (including welcome bonus and higher reward rates) and if you have to pay a joining fee of ₹1,000. Paying annual fees is still worth it as you are getting 80% higher returns (₹4,000 more) than the no-annual card.

HOW TO BUILD A CREDIT SCORE USING A CREDIT CARD?

Building credit score is essential not only to have higher approval odds for your financial needs but also provides larger benefits and rewards. There are several ways to build credit score but creating credit history using a credit card is the easiest and if you are starting and don't have credit history then there are three main ways you can apply for credit cards

i) Secured credit card
If you don’t have any credit history it’s very hard to get approval for the credit card without a credit score. so banks offer a better way to build credit by applying for a secured credit card. A secured credit card is usually tied to your savings account, and you are expected to open a fixed deposit account and deposit an amount. Once you deposit a certain amount then banks approve a credit card with a credit limit based on the amount you deposited. The amount deposited is just used as a security deposit by banks, and you will use a secure credit card like any other credit card and pay the dues.

ii) Open a joint account
If you don’t have a good credit score and trouble getting a credit card then the other option is to open a joint account with someone who has a good credit score. After the card is approved it’s your responsibility to pay your bills and maintain a healthy credit history. If you miss any payments then not only whoever cosigned your application is responsible to pay the due amount including late fees but also it impacts credit score for both individuals. As your financial behaviour impacts your cosigner's credit score it is extremely important to understand how it impacts your relationship with the cosigner before considering asking someone to be a cosigner on your application.

iii) Open your first credit card account
If you already have a decent credit history established, apply for a no annual fee credit card with a smaller credit limit. Choose a card that has higher approval odds for your credit score. Once you have the credit card follow the best practices to build a good score.

Once you choose which is an appropriate way to apply for your first credit card then follow these below steps to build a good credit score.

Set-up Auto payment
Missing credit card bills has a huge impact on your credit score. Easy ways to pay credit card bills are set up auto payment so you never miss any payment, no need to worry about a late fee.

Keep the credit utilization below 30%
Don’t utilize the entire credit limit, it is not only difficult to repay the entire amount if you do not liquid cash you may incur unwanted interest. High credit utilization is also bad for your credit score so the recommendation is don’t go more than 30%.

Treat it like your own cash
Though you can feel like you are getting interest free money for 45 to 50 days you need to consider your repaying ability. Just because you can get rewards, cashbacks don't overuse your credit cards hoping to maximize the benefits. Because if you fail to manage your money and fail to repay your bills it can backfire and incur unwanted financial damage.

Request a credit limit increase
Increased credit limit not only benefits to build a good credit score but also helps you to have a higher credit amount available for your spending and maintain a lower utilization. If you follow the best practices while using a credit card your score will automatically increase. Most issuers automatically increase your credit limit once in 6 months but if it’s not increased for you then you can request an increase by just calling the customer care centre or requesting online. Usually, issuers only do a soft pull while increasing the credit limit, so make sure you ask them and confirm before requesting for an increase.

FINANCIAL BEHAVIORS AND MISTAKES TO AVOID

Financial behaviours can help you build an excellent credit score or drag your score down. It is important to know what are the good behaviours and avoid mistakes that impact your credit score.

Not understanding how much you can afford

You need to maintain a lower outstanding debt compared to your income. Lenders do calculate your DTI ratio while approving your applications. Debt-to-income (DTI) is a ration on how much you owe to how much you earn each month (debt/income). Specifically, it’s the percentage of your gross monthly income (before taxes) that goes towards payments for rent or mortgage, credit cards, or other debt. In general, DTI less than 36% is considered as a good financial habit. You need to keep an eye on your DTI and if your DTI increases it means it is going to be difficult to pay your monthly payments. So keep DTI under control.

Not having a budget

Technology is making it easier to shop online, so more than ever, it is very important now to create a budget. The key factor to manage money more efficiently is to create a budget and adhere to the budget. Having a budget helps you to know how much you are saving and how much you are spending and helps you to make better financial decisions. For example, you can clear your debts by using savings from following a strict budget.

Inspect your bills regularly

You should keep a habit of inspecting your bills regularly to identify unwanted expenses, discrepancies and react immediately to any fraudulent transactions. One best practice is you take 3 month bills once a quarter and sort all your expenses and bucketize them. Sorting through all your expenses can help you not only identify unnecessary expenses but also help you to create budgets.

Failing to shop around for the right card

In general, most people won’t shop around and compare the deals when they are choosing a credit card or applying to a loan. They just follow friend recommendations. It won’t work all the time because everyone's spending habits are different so you should do a comparison for the best possible credit card or loan. If you spend time comparing all the available deals you will find the best credit card with maximum benefits and a lower annual fee.