It’s an amazing feeling when you get to hold your very first credit card. The surest approach to feeling like a real grown-up is to take out a plastic thing from your wallet that has your own identification on it.
But if you desire more than a momentary high, should you really bother creating an account? Whether or not the card is suitable for your intended purposes and needs is another factor. The consequences of this decision can be far-reaching, as many customers have learned the hard way.
However, with responsible management, it can serve as the cornerstone of a strong credit foundation that will pave the way to future opportunities for low interest rates on the automobiles, homes, as well as credit cards you’ll need.
Before committing, be sure you have a firm grasp of the gist of the situation. Let’s have a look at the consequences.
What Are The Benefits Of Using A Credit Card?
Opening a credit card account with a bank results in receiving a revolving line of credit. The account issuer will determine your credit limit after reviewing your credit report. All fees will be incurred until the current balance reaches the minimum amount due.
The availability of a backup payment option is a welcome safety net. A plus is peace of mind in the case of a temporary disruption in cash flow. Instead of taking money out of savings to pay for new brakes for your car, you can use a credit card instead if you’re short on funds. Credit card interest rates are often higher than those for other loan kinds due to the “unsecured” character of the accounts.
Even if you have a sizable savings account or other liquid assets, using a credit card to rack up points can still be a great idea. Some products offer discounts based on the total amount charged.
For quite some time, transcontinental travelers have shown a preference for credit cards that offer frequent flier points for spending on airlines. Loyalty programs offered by financial institutions have proliferated in recent years, and now offer customers discounts on everything from hotel stays to NFL merchandise.
If your employer doesn’t provide a credit card, it can be helpful to have a separate card for all of your business expenses. It makes it easier to maintain tabs on spending and frees up cash for more pressing matters, such as booking a travel to a city for a work-related meeting. Moreover, you get to keep 100% of the rewards you rack up on your card.
To avoid interest charges, make sure you get paid back on time by the company. Be sure you understand the company’s repayment procedure well. You should try to avoid paying for unpaid lunch meetings if at all possible.
It’s important to have a credit card even if it’s just to start building a credit history. Getting a loan for a big-ticket item like a car or house will be more challenging if you have no credit history.
Your credit card issuer reports your payment history to the credit bureaus once every month. If you pay your bills and other debts on time, it will have a positive effect on your credit score. Better results can be expected if you keep your credit usage to a minimum. Use of less than 30% is recommended for each individual account.
How long you’ve had an established credit profile influences how reliable you are as a borrower. The longer you keep an account open, the more weight it will have in determining your credit score.
The Ways to Recognize and Stay Safe From Credit Card Scams
Several credit card companies currently offer introductory 0% APR periods to win over new consumers. Using your credit line may seem like a good idea at the time, but it can wind up costing you more money. The introductory payment and rate plan only apply during the promotional period (often 9 to 15 months). It’s possible that your expenses will unexpectedly increase significantly.
Remember that the main way banks make money is from the interest fees you pay. Because of this, they will have an incentive to keep your account balances high. Why are they able to do this, exactly? This is in part due to the absurdly low minimum payments that must be made every month.
If you make the payment on the specified day, you’ll be considered “on time” according to the strict definition of the term. Interest at a rate of up to 99.9% per annum will be added to any outstanding balance from one billing cycle to the next.
This is only one of several potential hazards that cardholders must avoid. The second option is to take out cash advances, which are essentially loans made against the account’s credit. Simply slip your card into an ATM to withdraw money. Your bank gives you a large sum of money out of the blue.
A cash advance loan, while convenient (no additional approval is necessary), is also rather expensive. There is a processing fee associated with each withdrawal from a bank account, often between 3% and 5% of the entire amount of the withdrawal.
Not only that, but the interest rates they impose are likely to be higher than your baseline APR (APR). It is more common for interest to be computed as of the date of withdrawal than the day payment was originally due.
When funds are low, you have the option of reducing your lifestyle or seeking out more employment. You may think that using a credit card will help you solve your financial troubles, but the high interest rates and negative effects on your credit score will really make the situation worse.
It’s tragically ironic that people who need credit cards the most are also the most vulnerable to falling for credit card scammers. However, credit cards can be useful tools for establishing credit and reaping rewards, provided that you can pay off your balance in full each month. You can check out a kredittkort test if you want to learn more!
Methods for Establishing a Good Credit History
Customers with poor credit may have trouble getting authorized for a standard credit card. However, if you do not already have a credit account that you use sparingly, it will be challenging to increase your FICO score.
Since secured credit cards’ underwriting rules are more relaxed, they can be considered. As a result, the borrower must put up more capital than they would for other accounts, but the bank is protected from the possibility of default. Your credit limit will often equal your initial deposit.
Because your bank likely discloses your payment history to the credit agencies, you may see an increase in your credit score over time with any type of card. Since your credit limit is directly proportional to the amount you have on deposit, you will be less likely to go on a spending binge.
The CARD Act of 2010, a federal law, limited the direct marketing practices of credit card companies to college students. For instance, students under the age of 21 who wish to qualify for a student loan must demonstrate their financial stability and any form of campus-based advertising is prohibited by law.
Credit card companies continue to view young adults as a desirable target market. After all, the first card you get is the one you’ll use the most. People that fit that profile are frequently the focus of marketing campaigns on social media and at events away from campus.
No matter how alluring your proposal may sound, you should prepare for pushback. Before opting to apply for a card, you should carefully consider the pros and cons. Don’t sign up simply so you can get free swag or airline miles. There’s a chance that the actual price of this garment will be higher than your estimate.
Make an attempt at window shopping. Take into account not only the promotional rate, but also the ongoing APR and any annual fees. Verify that the places you frequently shop at accept your preferred credit card network. You might have better luck using Mastercard or Visa than American Express in Europe, where acceptance of American Express is falling and Discover is nearly nonexistent.
If the benefits are your primary motivation for using the card, you should read the fine print with care. Be cautious to check the airlines’ blackout dates and the locations they fly to before choosing a credit card provided by them.