You’ve searched through heaven and earth for the right Credit Card but still can’t seem to make up your mind about it. Here’s a stress-free guide on how you can wisely go about using your first Credit Card.
It’s only been two months into your new job but the constant travelling that it entails is leaving you with little cash to take care of the essential monthly expenses. Though you can get these expenses reimbursed by your company, you will still have to bear them upfront yourself. With only two months’ worth of salary at your disposal, there’s little that you will be able to afford comfortably without a Credit Card. While this situation may necessitate getting a Credit Card to better manage your expenses, you may simply be wanting to get one for yourself to mop up more rewards or build your Credit Score.
Naysayers might warn you against getting too attached to this piece of plastic, but if managed wisely, it has the potential to help you take control of your finances like a pro. If you’ve got a Credit Card for the first time, here’s a stress-free guide on how to go about managing it.
Research To Find The Card That Suits You Best
Before you zero in on a card, remember to research well and shop for the best offers. Check what Credit Card rewards would make the most sense for you and align with your lifestyle and spending habits. If your work involves constant travelling, you might want to get a Credit Card that offers great rewards like air miles, free lounge access, discounted flight or rail tickets etc. A card that offers cashback on movie tickets and great discounts on dining maybe more suited for you if your weekends are spent in dining out or catching the latest movie release.
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Essentially, there are two types of Credit Cards that offer rewards on your spends: rewards cards and cashback cards. Some of these offer category-specific rewards like travel, shopping, dining etc. and can come in the form of miles, cashback, rewards points etc. A low-interest card may be ideal for those with no Credit Card experience as they allow you to build your credit steadily over a period of time. If you’re opting for a cashback Credit Card, opt for a card that gives you flat-rate cashback. This way you’ll get the same percentage of cashback no matter what you purchase and you won’t have to keep track of when to use it to maximise your rewards.
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Be Aware Of Your Credit History
Your Credit Score is made up of your credit mix (10%), new credit (10%), credit history (15%), credit utilisation (30%) and payment history (35%). Unless you’ve had a Credit Card from before you started working or have been paying your student loans, it’s likely that you don’t have a Credit Score. If you have a little-to-no credit history, you can still build your credit history if you make the right moves. For instance, if you have a guardian or relative who has a good credit history, you can get them to co-sign a Credit Card with you.
Both co-signers will have access to the card and will be responsible for payment. You can also become an authorised user on an existing card- this way you will have access to the card but you will not be responsible for bill payments. In both cases, your credit history will report activity on the card.
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Pay Only For What You Use
As a rule of thumb, pay your outstanding Credit Card balances in full and on time, always. If you can’t afford to, check your card’s APR to estimate the amount that you would have to pay over and above your outstanding Credit Card balance. If you have a good Credit Score, it might even help you in securing a Credit Card with a low-interest rate. Credit Card companies offer a number of enticing sign-up bonuses but these often come with a minimum spend criteria that you will have to make within a given time period. Most Credit Cards will also come with an annual fee i.e. the amount that will be charged to your card in exchange for the benefits that you receive. If you have a rewards card, ideally you should try to earn as much as your annual fee in rewards to make your ownership of the card seem worth it.
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Practise Good Credit Card Habits
Credit Cards can come in handy if you practise healthy Credit Card habits. Here are a couple of things you need to bear in mind if you want to manage your first Credit Card well:
- Pay your bills on time and in full, always. This is an easy way to build your credit and if you have a steady income flow, you can even set up automatic payments to simplify the process.
- Keep a lid on your spending- even if you have a high credit limit on your card, try not to spend more than 30% of your available credit. Spend only what you can pay off. The lower your credit utilisation ratio, the higher your Credit Score.
- If you’re looking to apply for another Credit Card, wait it out for a few months before you apply for another. Applying for too many cards at once will result in a hard enquiry each time and that will bring down your Credit Score. Research well before you apply for another card and make sure it meets your specific needs and preferences.
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