Credit cards are important when it comes to building your credit and getting your first credit card is that big step you need.
Some first-time credit card users may be familiar with the basics of how credit works but for others, this is a major adjustment.
Having a credit card is one thing, handling a credit card is a different thing. If not used responsibly, could leave you in an enormous amount of debt and an embarrassing credit history. However, when used right, brings you closer to achieving financial independence.
To get you started on this journey, here are a few tips you need to know when it comes to your first credit card
Pick the right card for you
Picking the right card is important because it allows you to understand that credit cards are made to serve a purpose. When a credit card caters to your needs and lifestyle it is easy to keep up with it and maximize the benefits the card offers.
Don’t make a decision because you have friends using it or you are carried away by the perks that come with the card. If you are struggling to pay your bills, you may want to settle for a card with no annual fee and perhaps a lower interest rate.
If you travel a lot, you may want to get a card with a travel rewards program that can earn you points, which you can apply as a discount towards your next trip. Before you select a card, properly research what is best fit for your need, if you already have a card, still research and contact with your credit card issuer to see if you can make a product switch
Don’t’ buy what you can’t afford
Keep your spending to what you can easily pay off the full amount by the due date. Because some credit cards allow you to earn rewards, you may be tempted to charge all your transactions to your card. If you must do this, I will advise keeping a credit balance on your card.
This means, putting your own money onto your credit card. For example, if you have a credit limit of $1000, you pay $1200 into your credit card. The $200 is a credit balance. That way you can charge your transactions to your credit card and still earn rewards, same time using YOUR own money
Get good at budgeting
Plan your finances around your own money and stick with it. You need to get comfortable with being uncomfortable with delayed gratification. This way, you don’t feel the need to charge anything you can’t pay for on your credit card especially when it’s not important
Track your purchases
Tracking your transaction is very important because it allows you to know when it’s time to put a pause on your spending. If you haven’t already I will suggest downloading the mobile app of your financial institution. Typically, these apps come with features like spend alert and transaction alert (could be called something else depending).
The spend alert allows you to place a limit on how much you want to use within a cycle and sends you alerts when you are close or already at your goal. The transaction alert sends you a message every time a transaction is placed on your card. These are great automated ways of keeping tabs on your finances without effort. If your issuer doesn’t have one of those features, there are other third party websites that allow you to do the same for example mint
Set up Autopay
Setting up autopay is a convenient way of ensuring that you don’t miss a payment and are not a victim of bank fees. Good repayment history is very critical to your credit score and autopay ensures that. With autopay, you can either set up the full payment, minimum payment or a certain amount to be charged to your credit card. If you can’t ensure the funds will be available by the due date, then autopay won’t be a good fit however, it is up to you to keep up with the due date.
A few things to note;
If you miss a payment, your interest rate may increase, your cycle day and payment due date may change. When this happens, you will be paying interest over a lengthier amount of time.
Credit utilization is another contributing factor in your overall credit score. Credit utilization is the ratio of your outstanding balance to your credit limit. If you have a credit limit of $500 and you are always maxed out, it shows that you are heavily reliant on credit. You want to ensure you keep your utilization low
Pay your balance in full
There are two types of people when it comes to credit card payments. They are transactors and revolvers. A transactor makes their payment in full by the due date and a revolver makes a partial payment. There is nothing wrong with being either. However, because a revolver carries a revolving balance each month, they are constantly being hit with interest charges. Depending on how much outstanding balance they carry, interest charges can get expensive. As they gradually pay off the balance, they may not notice a significant reduction in their balance because, by the next cycle day, another interest is charged
Protect yourself from fraud
Always protect yourself from fraud. No one is immune to fraud and this is another way alerts come in handy. Setting up alerts quickly notifies you of unauthorized transactions on your account and enables you to deal with them in a timely fashion. Generally, institutions have a 30 days’ time frame to allow customers to dispute any fraudulent or unrecognized transactions on their statement. After that, reimbursement is subject to their discretion. Imagine having an enormous amount of fraudulent charges that you can’t afford and only being refunded a partial amount. As unfair as that sounds, it is written in the terms and agreement you accepted, thus, alerts allow you to have the upper hand.
Review your statement
Make it your duty to review your statement every month. If you keep the same spending habits or perhaps, signed up for automatic payments, it is easy and quick for you to pay off you bills without checking your statement. While that may be a good thing, reviewing your statement is even better. This way, you can catch those little bank fees on your statement or maybe a refund or adjustment you are yet to get from a previous transaction
Redeem your rewards
I am a fan of getting credit cards that come with some form of rewards. If you have a basic card that doesn’t come with any form of rewards program but still have the same fees as others, you may want to consider a product change. With every $ you spend, you are getting points that you can redeem towards a future plan.
This is why it is essential to get a credit card that fits perfectly to your needs and lifestyle. For example, if I have a travel card and I have spent so much on travelling, with the number of points I may have accumulated, it is possible that it can cover the cost of my next trip. If you are a traveller and you had a card like that, it is easy for you to remember. On the contrary, if you aren’t a traveller and you had a travel card, chances are, you may not remember to redeem those points. And, some points come with an expiration date. All that money spent for nothing?
Familiarize with the perks
Familiarize with the perks and insurance that your credit card offers. This can be of insane benefits to you and also save you a substantial amount of money. For example, I once damaged my iPhone, but, because I made that purchase using my credit card, I was able to file a claim with the insurance company and was sent to cheque to purchase a new one at no extra cost to me. A lot of cards I have seen come with auto rental discounts or insurance. The good thing is when you rent a car on your credit card you don’t need to pay that extra $25 insurance premium because your card has you covered.
Know the fees:
Ignorance is not always excusable when dealing with credit card fees. When you are charged a credit card fee, it is important to understand why that fee was charged in the first place. Sometimes, they are willing to make the exception to educate you and reimburse you and other times, they are only willing to educate you. To prevent all of that in the first place, read the welcome package that comes with your card and get to know the fees and how to avoid them
Don’t apply for multiple cards
When you like what another institution offers or you don’t have the same limit as your friend who is also a student, you may want to create a new credit card application
Seriously, don’t do it.
This is not good for your credit and as a first-time credit card user, you may get declined. Give it at least 6 months before you go ahead to apply for another one. After at least 6 months, when you have established a good repayment history and creditworthiness, you may qualify for a better offer with your current issuer and you will have also improved your chances of being approved