Planning to apply for your first credit card? You need not look far. Everyone knows how easy it is to get a credit card nowadays. Very often, most of us receive an overwhelming number of glossy brochures promoting one credit card or the other. This promotional onslaught, plus the ‘buy now, pay later’ advantage, is not something that you can resist. In addition, if you are qualified for a credit card and yet do not have one, people consider you as something of a rarity.
You may know that the wise use of a credit card is a great way to establish a favorable credit report. The basic advice you are likely to receive from a card issuer is to pay your bills on time and not to spend more than the credit limit. However, there are a lot more pitfalls you must watch out for while applying for and using your first credit card.
Here are some of them:
1. Understand how each card works: Credit cards are now available in many versions to meet different financial needs. Since each one works differently, it is vital that you understand the specific rules and regulations of your card.
For instance, many banks now issue credit cards that are backed up by your checking account. This card helps avoid excessive card usage by setting a daily spending limit. While such a card may check your unnecessary spending desires, it may not be quite useful while traveling or during emergencies.
2. Avoid spending to the hilt: It is easy to be tempted to use the card to its limit. However, remember that the more you spend, the more difficult it becomes to pay off the debt.
Then there are people who prefer to use their credit cards rather than carrying cash while traveling. But it is important to remember that you will have to pay finance, APR and other fees for every overseas credit card purchase. Consider carrying a bit of cash for small purchases and restricting the use of the card to reduce excessive fees.
3. Reconfirm the validity of ‘special’ interest rates: To begin with, most card companies may offer you amazingly low interest rates. However, such rates may simply be just the introductory offers to lure customers. A little while later, the company will begin charging the regular rates. When a company offers you an attractive rate, always confirm for how long you can avail the rate. This way, you can regulate your card use and avoid exorbitant bills.
4. Be aware of your credit report: Imagine you charge your card close to its limit. With high interest rates, your payable amount would come to a considerable sum. Now if you happen to miss a payment, you will naturally cross the credit limit. Although you may not be aware, this situation can create a black mark in your credit report.
Unfortunately, it is easy to overuse your card when money is tight. However, if you turn to the card to pay for your daily expenses, that can be a risky tendency. Such routine card use would soon land you in complicated debts that can negatively affect your credit report. Remember that such a negative report can cause long-term problems in your life. For instance, with a bad credit report, you are unlikely to qualify for car loan applications, mortgage applications or even apartment purchases.
It is true that wise use of credit cards can help create a good credit score that attracts benefits rather than risks. However, it is very easy to get into credit card debts due to two reasons – because cards are easily available and because we do not feel like parting with real money when using a card for the first time.
So, always think twice before using your first card frequently – especially if it incurs high interest rates.