New To The World Of Credit Cards? Here’s All You Need To Know
Finances form a crucial part of our routine lives, and modern society offers several means to manage them. Credit cards are a popular financial means in today’s world, and most people have a general idea about them. The shiny inanimate object possesses the potency to unleash numerous privileges, so it is viable for anyone to be intrigued by it.
If you have made up your mind to apply for one, it is good to understand the concept’s fundamentals to get the best deal. If used right, credit cards can sort all your financial needs, while using them irrationally can burden you immensely. That is why it is pivotal for you to comprehend the basics before making the final call.
On that note, let’s look at some key points every beginner should know before applying for a credit card.
What is a Credit Card and How It Works?
A credit card holds users’ account details and can provide credit the moment you need it. Users need to repay the credit amount before a set deadline to avoid additional fines and charges.
You can pay the amount in lump sum or instalments as per your leisure. If possible, users prefer the former option as the latter incurs additional interest. Paying off your credits on time is crucial as financial institutions tend to check your personal credit score before approving your credit requests.
Now that you have the basic gist of credit cards, let’s proceed towards a bit sophisticated concepts.
Know the Types of Cards You Can Avail Of
Before randomly applying for a credit card, know that you can opt for multiple card types. General-purpose cards are usable everywhere while private-label cards are generally applicable at service stations or issuing stores.
You can get a travel rewards credit card to earn offers and discounts on hotels and airlines. There are cash rewards credit cards, which are beneficial for earning cash prizes or even gift cards on prominent shopping platforms.
You can also avail of alternatives like business and student cards. The former can help you earn discounts on business purchases while the latter is useful to procure special discounts at local stores.
Additionally, there is another option for a secured credit card, which allows you a credit equal to your security deposits. If you have a bad credit history, secured credit cards should be your go to.
Different cards serve different purposes, so depending on your preferences, some cards might bode well with you than others.
Thoroughly Check the Agreement
Decided on the card you want to apply for? Now, check the agreement before making the final call. Once it is signed, you have formed a legal contract offering your consent to different terms like:
- Credit Limit: The amount you may be charged, including fees and interest.
- Grace Period: The number of days you are exempted from paying off the credit.
- APR (Annual Percentage Rate): The amount of interest charged on carried-over debts.
- Interest Evaluation Method: How the interest is charged on your credit.
- Fixed/Variable APR: How the APR for your credit is charged.
How Can You Apply for the Card?
Finalized the card? Went through the agreement? But how can you apply for the card?
Well, this is the next procedure you must know. Different companies offer different channels to receive your application. See if the institution accepts online applications, and what documents do they require to complete the process.
After you have applied, you need to keep track of the application status. Generally, it takes around 3 weeks for the application to be accepted, and 1 more week for the card to reach your address. Overall, it accumulates for a month, so account for it when you apply for the card.
Account for Different Card Charges
A credit card accompanies multiple charges, and you must know about them beforehand. It commences with the joining fee and continues with charges like:
- Annual Fee
- Late Payment
- Statement Expense
- Card Replacement
- Limit Exceeding
- Delayed Payments
Why must you account for the charges? An example might give you a better perspective. Imagine you are not paying your credit bills on a date seeing as the interest is charged at a mere amount of 3% to 4% per month.
The amount does not amount to much, but after 9 months annualized, you are looking at a massive 36% interest charge. It means you need to pay more than 1/3rd of your credit bill in the form of interest. This is why every beginner must be proactive when it comes to credit card charges.
Be Smart About the Number of Cards
While there is no specific amount of cards you must own, there are no restrictions on the amount you can possess either. Thinking that more cards equal more finances to spend is naïve. This thinking can lead you to massive debts or pay off unnecessary nominal fees for the cards you do not even use.
If one card suffices your needs, apply for one. If you opt for a retail card, choose the one compatible with the store you routinely visit. Be rational about the number of cards you own to avoid any unneeded financial burdens.
Always Remember the Important Dates
Now that you have your credit card, you must remember several important dates—the most important of them being the bill payment and generation date.
The former marks the date by which the user is expected to pay either the full credit or the amount needed to avoid a late fee. The latter signifies the closing of your billing cycle while enlisting the credit dues for the period.
You might think it is needless to remind users to pay off their credit bills; however, there is a reason why searches like debt consolidation loans uk are prevalent on the web.
Full or Minimum Payments
As mentioned, you can pay off your entire credit at once or in instalments. While the choice entirely depends on your preferences and capabilities, paying off the debt in full is always recommended. Because one, you will be charged interest on the remaining amount, and second, it attaches a bad credit reputation.
When you apply for a new credit card, the institute will most likely go through your payment history. Seeing how you barely managed to pay off your debts does not motivate confidence, and can cause them to reject your application.
Credit cards are sound financial tools that can help users manage their monetary needs. However, to a newbie, the whole process may appear daunting. But there is not much to be afraid of, as long as you understand the fundamentals.
Ensure to go through the mentioned details before finalizing a card to enjoy a debt-free credit experience. Try to be punctual with your payments and get optimal benefits from your credit card.