Good Credit Advice-How to Stay in Green
A credit card is the first financial tool that can ruin or build your financial future. For instance, every time you default on paying your credit, it is noted in your credit score file. A bad credit file may hinder you from accessing loans or other credit cards in future. Therefore, it is important that before you acquire a credit card, you have understood how to use it effectively.
When you pay your debts in time, you build your credit history. This means anytime you need another credit card or loan, the issuing companies won’t have any reason to doubt you. You have already proved that you can manage a credit card effectively. However, instead of ruining your credit file because you are not yet ready, why not wait till a later time when you know you are ready for one?
Most credit companies should advise you on the different types of credit cards they offer. They should explain to you in detail which credit card charges an annual fee, has a high-interest rate and gives perks or cashback rewards. Then based on the reason why you need a credit card and your income, you should choose one that will be easy for you to manage. Let us tackle in detail good credit card advice you should receive before you acquire your first credit card.
Income
You will need to consider your income before you apply for a credit card. There is no use in acquiring a credit card that is much more than your monthly income. However much you pay the minimum monthly requirement, you’ll always push forward a debt because your income cannot sufficiently pay for it. This will keep you in constant debt. This is especially seen in students and low-income earners.
Therefore, as a student don’t rush into applying for any credit card. You need to consider student credit cards that have low-interest rates. Also, students don’t shop regularly, therefore the credit cards with annual fees could be expensive for you yet you can look around for affordable ones.
Timely payment
One of the best practices of effectively using a credit card is a timely payment. Every time you miss a payment or postpone it, you get charged late fee and interest on whatever you owe. This may seem a small amount but can accumulate so fast. If you can, pay your credit card in full. However, if you cannot pay in full, at least pay the minimum monthly payment.
Some companies might lower your credit limit, increase your interest rate and late fees charges in case you don’t pay in time. Also, remember late payment lowers your credit rating that might mean the difference between getting a loan or not in future.
Interest
Different card companies charge interest differently. In case you pay more than half of your credit card bill, some companies might charge interest on the balance while others charge interest on the whole amount. Therefore, ensure you understand the terms of your card before you get it. Interest fees also tend to accumulate fast. If you can avoid them, it will help you keep out of debt.
Avoid the Minimum Payment Trap
Usually, the minimum amount on your card is quite small and it’s so easy to ignore the other monies and pay only this one. However, know it’s a trap that will cost you heavily in the long run. Remember every balance on your card is charged late fee or interest, depending on the company. If you calculate how much you pay in a period of, say 10 years, it will be a lot. My advice would be you endeavour to pay your card credit fully every month. When you do this, you get to enjoy the interest-free time.
Emergency Fund
If you can, set aside an emergency fund. It is bad practice to use your credit card to pay hospital bills, insurance and other emergencies. You deplete the card so fast and remember you’ll need other necessities like water and food that you cannot do without. You might end up borrowing some more which will throw you in a deep financial debt that you might spend years repaying.
Last Remark
A credit card is an important financial tool when used well. It will help you afford food, water and other necessities in times when you don’t have cash. However, misusing a credit card can land you into a big debt. No one wants to spend years repaying an endless debt. Endeavour to read and understand your credit card terms and conditions plus policies before signing that agreement. Also, avoid late payment and the minimum payment trap and avoid exceeding your credit limit.