Tips for Credit Card Beginners
The world of credit cards is an amazing place. A place where a person can purchase whatever they want and whenever they want. Well… you better not be buying everything you want, whenever you want. If only finances were that easy! While having a credit card for the first time is very exciting and helpful, it can cause a lot of problems if the person does not use it correctly. This is especially true for beginner users with little experience in balancing expenses versus incomes. Below are 3 great tips for new card holders to ensure that they use their credit cards wisely and responsibly.
Only use it when you have the money to pay it back or for emergencies.
It is important to realize that your new card is not a free ticket to purchase everything that you could want. Realize that the money spent will need to be paid back to the bank, with interest; just like a regular loan. As a result, you should use your new card only when you have the money to, not whenever a salesman convinces you to make a purchase. Additionally, another good way to think about your first credit card is as an extension of your bank account. Only use your credit cards for a purchase when you actually have at least the same amount of money in your bank account ready to pay it back. You should pay your card back in full every month, don’t carry a balance unless it is absolutely necessary because you’ll have to pay interest fees. You might be asking, “if I have the money in my account, why bother using credit cards at all?” There are 2 reasons:
1. You want to use your card to build a good history of payments. This will help you down the road when you need to apply for a loan. It shows you have been responsible. This will build history and keep your credit score going up over time.
2. Bonus points! Most accounts these days have some kind of rewards program. Generally, it’s 1% of whatever you buy. Therefore, rather than using your debit card or cash, you use your credit cards and essentially get a 1% discount on everything.
Review the Card’s Terms and Conditions
It’s easy to just activate a new card without reading the fine print that is sent along with it, especially as a beginner. Most credit card companies hide the details out of plain sight so that people use them without knowing all the terms.
As a result, people use their plastic money and incur charges they never even knew about, such as annual fees, late fees, and interest. It is important to read all that information to ensure that you are aware of all of the fees and charges that come along with it. Credit cards for beginners with little history can come with steep fees if you don’t know how to avoid them.
Know Your Limit and don’t be afraid!
It is important to realize that the amount of money spent through a new card has to be repaid back to the bank. You should pay your credit cards back in full, every month like clockwork. Just use them to build your credit and earn your bonus points. However, if you are unable to immediately pay back what you purchased, it is necessary to sit down and calculate the amount that you are able to repay back to the bank every month. Setting a spending limit each month allows a person to use their card wisely and not just because they have it. The interest rate on credit cards is usually higher than any other kind of debt. Your beginner credit card should probably be the first thing you pay back, if you happen to owe money to more than one person or in more than one place. Chances are the interest the other people/places charge is less than what the credit card companies are charging you.
The power of having new money to spend can be overwhelming sometimes, especially for those who just got their FIRST credit card. Using it wisely is absolutely essential if a person wants to ensure a debt-free financial future.
Credit cards are a vital part of building your financial credit history. As long as you follow these simple rules about paying it back every month in full and only carrying a balance for emergencies, you will be fine.