The 6 Things you Should do to Prepare for a Credit Card
Credit cards are a plastic mode of payments that allow cardholders to make their everyday purchases without having to carry cash. However, while this plastic money i.e., credit cards seems extremely easy to use, they can land you in debt along with damaging your credit if you are unaware of its basics. With a proper financial foundation set for you in place, you will be better off when it comes to being prepared to responsibly use the plastic money.
Study Your Expenditure to Avoid Any Debt
Unlike the purchases made on a debit card, where the funds directly come from your checking account, credit cards work like loans. When you make use of it for payments, the credit card provider allows you to borrow that money for any expenditure with the agreement that you will repay it.
When you do not see money directly coming out of your account, it tends to become easier to spend more than you are earning. If as a result of this, you are unable to make the repayment of the amount that you have spent in full by the due date on your card, you will be charged interest on the outstanding balance. If you are unable to make at least the minimum monthly payment by the due date, you might also end up getting yourself charged with a late payment fee. In the same manner, if you have exceeded the credit limit available on your card, you are likely to be charged the over-the-limit charges. The amount you pay as interest depends on the rate of interest i.e. the annual percentage rate (APR).
In order to avoid any debt, make a total of your expenses as well as your income in a month, and then set a budget for yourself. This budget i.e., the monthly plan will help you in spending under an amount fixed by you on your credit cards and thereby keeping your balances low. Ideally, one should spend less than he or she earns so that there are sufficient funds left over to allocate towards savings and investment.
Track Your Score
Lenders make use of your credit score in order to evaluate the risk involved in lending you funds and then decide whether or not to approve you and the terms for the same. Before you go ahead and search for credit cards to opt for, you should find out your credit score so that you are able to shortlist the options that you are likely to be approved for, along with good rewards and low rates of interest. The credit card providers will usually provide you the range that one might need in order to qualify for the card.
Once you get one of your shortlisted credit cards you should monitor your credit score regularly. It tends to fluctuate up and down depending on one’s credit card behavior. Your credit in use, payment history, the length of the history, type of credit, and new credit – all can have an impact on your score be it negative or positive. In order to get new credit cards, loans, or mortgages it is essential to maintain a high credit score.
Understand Borrowing and Repayment
Before you go ahead and borrow money, make sure you are aware of your responsibilities and rights. More than that, a credit card is sort of revolving credit – this means that you can borrow money regularly as long as you manage to stick by the terms and conditions, opposed to a regular loan that allows you to borrow only once.
Also, be aware of the APR charged on your card so that you know the money owed by you every month, the due date for payment, and the grace period. On top of this, make sure you know what happens if you fail to abide by the expectations of the lender. For example, if you do not make the payment on time, what are the fees charged?
Under How Rewards on Credit Cards Function
Some of the credit card providers offer their cardholders rewards in the form of an extra incentive that makes them want to spend. These are cards known as reward credit cards and they come with advantages such as miles for airlines, or some points that can be redeemed across various products and services.
The rewards earned on the credit card are proportionate to the spending on your card some cards might allow you to earn 1 point for every AED 1 spent. Some might also offer a bonus on sign-up rewards that allow the cardholder to earn even more perks if he or she manages to spend a fixed amount within a fixed period.
While it can be quite attractive to get a card for the rewards that it offers, chasing rewards can end up leading you in a position wherein you have balances racked up that you might not be able to repay. These cards might also come with a large annual fee for holding them.
When you are choosing credit cards, make sure to opt for the one with rewards that you can enjoy without going into debt.
Ensure Good Management of your Checking Account
The checking account you own is not the only account where your bill payments will be withdrawn and paid. It does dedicate your monthly cash flow as it is the hub for your finances and it also acts as a ground to manage your cards.
The bright side to this is that the same skills that you require to manage a checking account smartly are what will make you a responsible credit card user. For instance, regularly monitoring your accounts is applicable in both cases.
You should be able to manage your checking account without any sort of overspending before you go ahead and consider opting for any of the credit cards.
Know the Due Date of Your Card Balance
Every month, your credit card provider will track the purchases made on your credit card and issue a bill to you for the amount that you owe. This monthly bill might be the only reminder that your care provider gives you when it comes to sending a message regarding your due date coming closer. Fortunately, the dues on your credit card need to be paid every month on the same date, so it is easier to remember and manage.
To prepare yourself for paying off the dues, put a system in order that helps you in remembering the essential dates. If your issuer allows you, try and set up a reminder for the due date. Or, use another reliable platform such as a calendar app to help you remember.
To Sum It Up
- Forming a budget helps you to enjoy the perks of credit cards without falling into any debt.
- Understanding the terms of payment on your card and other responsibilities can help in timely payment and avoid any excess charges.
- Tracking and maintaining your credit score can help in shortlisting the right cards as per your profile and boost the scope of getting other credits.