The Top 10 Things You Should be Aware of When Getting a Credit Card
The thought of getting your first credit card might be exciting, but it is a huge responsibility. Using a credit card may sound as easy as spending money and paying it back later, but it is much more complex. So, if you are thinking about getting a credit card, you must learn what it entails to avoid potential issues.
This article will give you valuable insight into understanding credit cards and making an informed decision on whether to get one or not.
10 Things to Consider When Getting a Credit Card
Here are ten things you must consider, especially if it is your first time getting a credit card.
Know Your Options
If you are a first-time credit card applicant, you may struggle to get the best credit cards available in the market. A well-reputed credit card offers you rich perks and rewards with big sign-up bonuses, discount offers, cashback offers, and 0% interest for a specific time period.
To secure these high-end credit cards, you need a credit score of at least 690 or higher. However, if you cannot get your hands on these cards, it is worth considering other options, such as student credit cards, secured credit cards, etc.
First Credit Card: It Can Make or Break Your Credit
While a credit card can help build your credit history, it can also ruin it if you are not careful. Your credit card issuer reports your credit card’s activity to the credit bureaus. These companies will then create your credit reports and determine your credit scores.
This report contains information on whether you made the payment on time or missed it. Late payments and using your credit card to its maximum limit don’t look good on your credit reports. Therefore, you have to ensure that you keep up with the payments and pay your credit card balance in full each month. A quick tip here is to keep your credit card balance under 30% of your card’s total available limit.
Check the Rates and Fees Before You Apply
Credit card issuers are under obligation by federal law to disclose the fees and interest rates they will charge. Therefore, always check the interest rates and fees and make sure there are no hidden costs involved. You can find all the rates and fees on a credit card application fee page. Look for a header saying “rates and fees” or “pricing and terms.”
The fee structure shows the annual fee you have to pay for using the credit card, as well as the annual percentage of interest the credit card issuer will charge. Furthermore, the fee schedule also includes information about foreign transaction charges and late fees in case you miss the payment deadline.
Penalty for Late Payment is High
Don’t fall into the trap that you can miss a payment one month and pay a lump sum the following month. Missing your due date comes with an expensive penalty. Typically, the first-time violation of missing payment within the legal time limit can cost you over $20, whereas subsequent violations can cost you an extra $40 in penalty.
On top of the late payment charges, a penalty APR also kicks in, and your interest rate can go up to 30% for new transactions. If you still don’t make a payment 60 days after the due date, a penalty APR applies to your outstanding balance.
Even when you end up paying these penalties, the card issuer will still report your poor payment behavior to the credit bureaus. This, in return, will hurt your credit score as well and may affect your ability to get credit in the future.
The best way to avoid this is to set up a direct debit on your bank account to make timely payments every month. For instance, if you get paid on the 1st of every month, set up an automatic payment for your credit card on the 2nd of every month.
Using Credit Card’s Limit Can Hurt Your Credit Score
While the credit card issuer may have given you a maximum limit you can spend every month, getting close to it can hurt your credit score. This is because when you use your credit card closer to its limit or deplete the entire available limit, it impacts your credit utilization ratio.
Therefore, always ensure to spend no more than 30% of your available credit limit. For example, if your credit card has a limit of $1000, you must not spend more than $300 every month. Also, ensure to repay the $300 in full by the end of every month. Making a minimum payment will also affect your credit score.
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You Can Avoid Interest
While APR is an integral part of your credit card facility, you can avoid paying it. All you have to do is to pay your balance in full by the end of each month. The card issuer will only charge an interest rate after your grace period expires every month.
Suppose your credit card issuer gives you a 30-day grace period to repay your balance after spending the amount. If you clear the balance before 30 days, you won’t have to pay a single cent towards interest.
Don’t Fall for a “Pay Minimum” Clause
The credit card statement might ask you to make a minimum payment to maintain good standing. However, this comes at a price because by paying the minimum balance, you will be able to avoid late fee charges. However, the card issuer will start charging interest rates on the remaining balance, which is how they make money.
Plus, having to pay interest rates can also shake up your monthly finances. A higher interest rate may trap you in a vicious cycle of debt that never goes away.
Credit Card Frauds are Real
Online shopping is a new norm nowadays, which makes your credit card details a target for cybercriminals. Therefore, you must ensure to educate yourself about the ways you can avoid credit card fraud attempts.
That said, credit card issuers also protect against any credit card fraud. Even if a hacker gets hold of your credit card details and commits fraud, you aren’t liable to pay for it. All you need is to report the fraud to the bank or credit card issuer the moment you find out about it.
Remember that the credit card company’s money is at stake, and you will get an ample time frame to dispute a charge due to fraudulent activity on your credit card. If proven, the credit card issuer will immediately remove that specific charge from the outstanding balance.
Know Your Rights
If you are a victim of credit card fraud, you don’t need to pay anything. The federal law protects you and minimizes any liability for any unauthorized activity on your card. Credit card networks such as MasterCard and Visa have a zero-liability policy. This means you pay $0 for any fraudulent purchases from your card.
Report a Stolen Card Right Away
If your credit card is lost or stolen, you must report this to the issuer immediately. The issuer will cancel your existing card and send you a new one. This will ensure that no one can make any transaction from your old credit card.
Similarly, if you spot an unauthorized payment on your credit card statement, you can inform the credit card issuer or bank and open a dispute for investigation.
Conclusion
Getting a credit card is like having an extra cushion to fulfill your financial needs. Therefore, keep it as a backup instead of making it your primary source of managing your finances. If you are a young adult, it is best to build a solid credit history to get the best credit cards with favorable terms and conditions. Once you have a credit card, remember the above-mentioned factors and stay on top of your credit card management at all times.
