If you’re young and just starting out credit cards are certainly convenient and can help you establish a good credit history, which will be important when you need to make major purchases down the road. However, carrying a credit card comes with big responsibilities. Here are some tips on how to use your credit card wisely.
Choosing the right credit card
When selecting a credit card, you should consider your own needs. For example, if you’re going to be carrying a balance (not paying off the entire bill each month) then it is imperative to seek out the lowest interest rates that you can find. But you may be limited by a few circumstances, one of which is your paycheque. Some credit cards require a minimum income level or charge an annual fee.
A high limit credit card could be a recipe for disaster. Signing on the dotted line is fun. No money comes out of your bank account and no cash comes out of your wallet. Shopping has never been so easy. That’s why when starting out the best credit cards are the ones that have low spending limits, unless you can afford to pay for any of the charges that are made on it.
Just about all credit cards offer some type of incentives such as rewards points or cashback incentives. This is done for obvious reasons. The most common of which is to entice the cardholder into using it more often. Overall it is a pretty good deal to receive rewards for credit card charges as long as you bear in mind that this is not free money. Whether you realize it or not, you have already paid for those points.
Managing your account.
Managing your account online is a great feature; just about everybody has access to the Internet and can easily access their credit card statements.
Studying your credit card statement
You’ll receive a statement that details what you’ve bought and what you need to pay. The purchases you’ve made will be tallied, just like on a bank statement. You’ll need to pay attention to:
· The amounts – Make sure your purchases are listed correctly by comparing the amounts to your own purchase receipts. Doing this will help you understand where your money is being spent and help you adjust your spending patterns.
· The balance – If for any reason your statement seems a lot bigger than you thought it would be, you may be heading into a danger zone. Keep your balance within a range you can afford to pay off every month. And remember to save some credit for emergencies.
· The minimum payment – You need to pay this amount each month toward the entire outstanding balance. Making substantial payments every month will help you keep the interest under control.
· The purchase interest – This is how much you’re paying on purchases that have not been paid off in full by the payment date. Whenever you carry a balance forward from the previous month, you’ll pay this monthly interest.
· The payment date – When you are busy and responsible for many bills, it’s easy to forget when everything is due. However, paying bills on time is crucial to maintaining a positive credit record. Over time, it could mean the difference between being approved or denied for other credit, such as a car loan or a mortgage. Many credit card companies advise making payment a few days before the specified payment date to ensure receipt. Another option is to pre-pay your bills using telephone or Internet banking.
Staying out of the danger zones
It’s a good idea to avoid the following, despite the temptation:
· Cash advances – You’ll pay interest on a cash advance from the moment the cash is in your hand. You may also be charged a service fee. Cash advances are great for emergency cash but avoid using them as an income supplement.
· Hitting your credit limit – There are many reasons why hitting your credit limit can be dangerous.