Having a credit card could be a liberating experience. It gives you the freedom to indulge or invest in with a promise to be able to afford it in the future. While the possibilities are enticing, you also have to be careful with your credit card usage.
So, you have finally given in to one of those calls from credit card companies and decided to get a credit card. Now, if you are a fresher in this realm, there are a few fundamental rules that you must remember as a consumer.
Related Questions / Contents
- Find The Credit Card Best Suited For You
- Build Up Your Credit Score
- Check Rates And Fees Before Getting A Credit Card
- Monitor Your Credit Card Usage
- Avoid Interest On Your Credit Card Bill
- Don’t Miss Your Due Date
- Don’t Get Too Close To Your Limit
- Be Aware And Deal With Frauds
- Check Your Credit Report Regularly
Find The Credit Card Best Suited For You
As a first-time credit card applicant, it is quite unlikely that you will find the credit card of your dreams. The best credit cards with endless benefits such as high usage limits, great perks and bonuses and lengthy zero per cent interest periods are not for you. They are mainly for people with long credit histories and great existing credit scores.
You will definitely need to go for one of the cards for people with limited or no credit history. They offer decent rewards, and some of them do not even have an annual fee. Some of these types of cards are –
- Student credit cards
- Secured credit cards
- Credit cards for people with fair credit
- Pre-qualified credit cards
Build Up Your Credit Score
Your first credit card gives you a unique opportunity to build your credit score up. But you must be extra careful because it is quite easy to ruin it as well.
An elementary rule that can help you navigate this with ease is keeping your credit card usage to 30% of your available limit. This can ensure that you do not max out your credit card in excitement and get a low credit score.
This basically requires you to be mindful of your expenditure. You cannot use your credit card to substitute for cash. You need to plan out your purchases and use your credit card only for these. Also, ensure that you will be able to pay for them once your bill is generated.
You can use it to pay your monthly bills as that would ensure that you are using your credit card for a consistent amount every month.
Check Rates And Fees Before Getting A Credit Card
Credit card providers are legally allowed to let you know the various fees and rates that are associated with the card. There will be a few things like your usage limit, which will only be disclosed after your card is approved.
But the following will be shown to you in a table called the Schumer box when you are filling out your application:
- Annual fee is the amount charged for your credit card every year.
- APR or Annual Percentage Rates are what you will pay on a monthly basis when you carry forward your monthly balance.
- Foreign Transaction Fees are charged when you use your credit card outside of the UK.
- Late Fees are charged when you fail to pay even the minimum amount due by the payment deadline.
Monitor Your Credit Card Usage
A wise move for a first-time user is to keep tabs on your credit card spending using the card’s app or internet banking provided by your issuer. This way, you do not need to wait until the end of your cycle to receive a consolidated statement.
This will help you figure expenses that you can cut down and also help you make a note of some suspicious charges that your card might be incurring. Based on your card, you can even customise for alerts on your app to ensure that you do not end up spending more than required.
Avoid Interest On Your Credit Card Bill
Credit card interests can be extremely high, but if you play it right, you don’t even have to pay any interest for your usage. The simple trick is to pay your entire balance before your due date. This way your new purchases will not accrue any interest till the next due date.
If you pay off your next month’s bill again before the due date, you are safe still! But if you end up only paying the minimum value, you will accrue interest on your carried balance as well as the new purchases that you make in the next month.
Don’t Miss Your Due Date
Missing your due date is another disastrous situation that you do not want. This will incur many fees which will end up being a much more financially scarring experience than paying your balance. Moreover, the impact of this on your credit score will not be great.
You can set up automatic payments to ensure that you do not miss out on your payments and the amount gets directly deducted from your account. You can also set up monthly reminders before you due date. You can also pay off your balance as soon as your bill is generated or you get your salary.
Don’t Get Too Close To Your Limit
Your credit utilisation rate is the percentage of your available credit that you use. The lower credit utilisation rate you have is better.
The 30% rule for your credit card expenditure is golden. Getting too close to the limit on your credit card can lower your credit score.
Be Aware And Deal With Frauds
Credit card frauds are more common than you think. So, being aware of them and knowing how to deal with them will come in handy. When there is a fraud, your credit card company actually provides you with more protection than you would expect.
You really don’t have to pay for suspicious transactions, and most credit card networks like Visa and Mastercard bring your liability down to zero. Moreover, you can get a replacement card easily after you cancel your card.
Check Your Credit Report Regularly
Since you are working towards building a credit score now, it would be helpful for you to monitor the same regularly. For free credit check UK has three credit bureaus that give you reports once a year.
With this info in hand, you can work towards bettering your score by following the best practices for credit card owners. Be aware, careful and frugal when using your credit card to maintain an excellent credit score while reaping its benefits.