If you have never owned a credit card before, you are probably wondering how they work. Basically, you “borrow” money from a financial institution to make purchases and then pay at least a percentage of the money after a given period.
The remaining amount is what accrues interest. However, this can be avoided by paying back your credit card in full and on time. If you don’t know what credit cards are or what they are all about, it is important to do ample research before deciding to open an account.
As a new credit card user, you may be subject to specific fees such as deposit fees. This is because these financial institutions are taking a risk by giving credit to a person who has no track record of carefully managing a credit card. Read on to learn more about credit cards and if getting one is right for you.
Do You Have to Get a Credit Card?
Nobody needs a credit card per se, so consider the reasons why you want to get one in the first place. They can be an easy way to establish credit, but if you choose not to open a credit card, you will need to find other ways to build credit.
Credit cards have their advantages and drawbacks. Below are some of the pros and cons of getting a credit card.
Pros of Getting a Credit Card
- You can earn rewards
- You will have access to emergency funds
- You learn how to use and manage credit
- Access to finances to make large purchases
- Opportunity to establish a credit history
Cons of Getting a Credit Card
- Can come with expensive fees
- May end up paying interest
- You will be tempted to live beyond your means
- It is easier to fall into debt
Building Your Credit
Once you get a credit card, it is essential to have good credit. This means paying attention to the amount of debt, kind of credit, length of credit history, and your history for requesting credit. If you want to have a clean credit history, you shouldn’t ignore any of the above components. However, using your card responsibly and regularly is a great way to build credit.
Tips For Choosing Your First Credit Card
Depending on what you are looking for in a credit card, here are some tips to help you with the process of selecting a credit card.
- Consider a card that comes with zero annual fees
- Consider a card with low APR
- Consider a student or secured card
As you use your credit card, don’t forget to stay on top of paying back the loaned money and avoid going beyond your credit limit. This will only but lead you further into debt. If your card has rewards, always remember to redeem them. Many people forget to use their rewards.
Bottom Line
When you are new to the world of credit cards, it is easy to miss crucial factors. As such, always set a reminder for paying your bills each month. There are also many budgeting apps available online, so make use of them to ensure you don’t overspend. Also, you must regularly keep tabs on your credit score to see where you stand.