5 things to know before getting a credit cardPosted:
Getting your first credit card can be a liberating experience. You can enjoy the convenience of a simple swipe or tap, and you don't have to worry about having cash for all your purchases. However, if you don't use your card wisely, it's easy to get into unpleasant credit situations that can have long-lasting effects. Avoid such situations by considering these five points before diving into the world of credit and debt.
1. Know What You Want in A Credit Card How do you plan to use your card? Do you intend to pile every possible bill onto that card in order to get rewards, or do you plan to use it for selected large purchases? Do you want to set up automatic payments on your card? Do you plan to carry a balance (spend more than you can pay off at the end of the billing period)? Defining what you plan to do helps you rule out certain cards and find the one that best fits your needs.
2. Understand How Revolving Credit Works Credit cards are not like a traditional loan, where you borrow a set amount of money and pay that loan off over time with interest. You can borrow up to your credit limit, and then once you pay off a portion of that debt, you can borrow that amount again (hence "revolving" credit).
Credit card issuers are not simply extending credit to you out of the goodness of their hearts. They are in business to make money. Their profits come from a combination of fees and the interest charges that you pay when you carry a balance over from month to month. If you use your card in ways that trigger fees or you carry a balance that generates interest charges, you will pay more for credit usage than you have to.
3. Know the Effects It's important to use your credit card wisely and always pay your bill on time. All of your credit transactions are reported to the three credit bureaus (Equifax, Experian, and TransUnion), and those transactions are used to determine your credit score a measure of how much risk you pose to other potential creditors. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips.
You don't have to carry a balance to build a good credit rating. Greg McBride, Chief Financial Analyst at Bankrate.com, advises, "You can build your credit score very effectively by opening up credit cards and then paying the balance in full at the end of the month."
If you miss payments or rack up debt totals near your credit limit, you raise a red flag to other credit sources. It may be harder to obtain another line of credit or any type of loan, or you may pay higher interest rates to compensate for the risk. Missing payments also triggers late fees and, in some cases, a penalty interest rate considerably higher than your current rate.
4. Different Cards Have Different Terms Card issuers offer a range of cards, each designed for a particular type of user. Annual percentage rates (APRs), rewards programs, fees, and payment terms differ widely among cards. Some cards are targeted to a narrower category of users, such as those with poor credit or those who seek a specific type of reward.
Websites and other resources are available to help you compare and contrast terms and rewards of popular credit cards, but those are just broad overviews. It's up to you to look over the terms and conditions pages in detail and select the card that best fits the plans that you established above.
5. Budgeting is Important The convenience of a credit card makes overspending easy. By establishing a budget that includes your planned credit card spending, you make it easier to track purchases and limit impulse spending.
With preparation, you will be ready to handle the responsibilities of a credit card wisely. You will not only establish a good credit rating, you will also establish sound money management habits that will stay with you for the rest of your life and life is easier with good credit.
If you want more credit, check out our list of credit card offers.
Originally Posted at: https://www.moneytips.com/5-things-to-know-before-getting-a-credit-card
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