Credit cards are crafty financial instruments with which you can borrow money without any interest within a certain period of time. Over the years, they have become highly popular mainly due to the convenience of buying first and paying later offer. However, using credit cards irresponsibly can lead to a lot of undue financial stress. If you are applying for a credit card for the first time, take a moment and contemplate what you know.
Several key factors can keep first-time card owners like yourself out of financial trouble. Do you know how a credit card facility really works? Or what features to look for when choosing your first card? What about the finer details of your credit score? Like these, there are many important things that you should be aware of before submitting your first card application.
Credit cards provide you with a line of credit that you can use for various purchases. Later, you will have to pay back the amount you spent on credit, preferably in total, when each billing cycle concludes. However, with credit newbies, card issuers usually prefer to be sure that you have a way to pay back the credited amount until you develop a history of creditworthiness.
Financial institutions offer secured or unsecured credit cards based on your eligibility factors and monetary requirements. The former is issued against collateral like a fixed deposit and comes with a lower interest rate. Conversely, unsecured cards don’t need any collateral but charge you a higher rate of interest.
Be it banks or NBFCs, all credit card issuers are legally obligated to disclose the interest rates, foreign transaction fees, and other charges they offer on their website. Before you sign up for a credit card with a certain financier, be sure to make a detailed comparison of every card’s detail and benefit. Familiarise yourself with the ins and outs of the shortlisted cards that you fancy. Also, check out the few credit cards available without any annual fee. These tend to be good ventures to use a credit card for the first time.
Upon exploring the various types of credit cards, you have possibly felt apprehensive due to the high interest rates charged by certain cards. However, they shouldn’t be a nuisance as long as you remember to promptly pay your total credit card bill. Most credit card issuers offer you a grace period to clear these dues. This is basically the amount of time from the end of one billing cycle until your bill’s due date. During this grace period, you will not be charged any interest on your remaining credit balance, so make sure to clear them by the last date.
If you want a good credit score, keep in mind that a key step is to always spend below your credit card’s limit. As a rule of thumb, try not to take your expenses over 30% of the limit on your credit card. This average credit usage percentage is also called the credit utilization rate. It provides a ratio of the amount of credit you are using against the available amount. This calculation is important to calculate your credit card balance as well as your credit card limit.
Always peer over your credit report with a fine-tooth comb! This ensures that you immediately spot any error in charges, expenses, or calculations on your credit report. Immediate reporting of unauthorised credit charges prevents you from being overcharged. Furthermore, remember that your finances are adequately secure with a credit card than before, with fraud liability! Most financiers offer identity theft assistance or comprehensive fraud protection, so that you are covered for any fraudulent charges.
If you think keeping your credit card untouched will help boost your credit score, think again! Credit card issuers always check how you are using your available credit; hence, making purchases with your card is important. The main intention is to keep it active, which will also make sure that you’re your bank or card issuer doesn’t close it on you. What you need is to find a balance. Keep your credit utilization under 30%, but also make sure to use your card now and then to get additional benefits.
Your first credit card is an important milestone in your financial journey, largely impacting your credit history. With credit cards, you can afford the basic daily expenses and qualify for loans at lower interest rates. Cancelling your credit card means you have to let go of this convenient payment facility, which also proves detrimental to your credit score. Letting go of your oldest card will also decrease your account’s average age and your overall credit limit, mainly affecting your credit score.
Were you eager to gain a financial edge with your first credit card but your application got cancelled? Don’t be bummed, instead embrace the learning curve! Card issuers are legally obligated to provide you with an adverse action notice to explain their decision. For example, a bank might clarify that your application was denied because of a low income, or the lack of a credit history, and so on. From this feedback, you could start to plan your finances better to improve your approval chances for a credit card in future.
Credit cards make your shopping experience more lucrative, with a bounty of rewards and cashback offers. Regularly using your credit cards can earn you many types of reward points based on the type of the card, or you can avail numerous discount coupons and schemes from select retailers. These reward programmes can help you save on cumbersome everyday expenses like grocery and utilities, as well as dining, shopping, travel, etc. Decide your line of expenses and apply for a credit card that is most aligned with your preferred rewards scheme.
If you want to become a responsible credit user, the cardinal rule is to begin as early as possible. But knowing the tricks of the trade beforehand will give you the much-needed edge when it comes to making the most of your credit card. This way, all your future financial ventures, from loan applications to mortgages, will go smoother. Why wait for another tomorrow?
The quicker you develop a creditworthy tagline to your financial reputation, and the longer you keep it, you will be eligible for more lenient loans, and other monetary schemes. Keep in mind the above facts and choose from a wide range of credit cards offered on Bajaj Markets now! Time is your biggest friend in this journey, so make the most of it. Apply for a credit card today and see your financial problems fade away!