Credit cards give a whole lot of convenience to the wise user and is something that is quite hard to live without nowadays. Business people and frequent travelers don’t have to carry that much cash when they go out and it can also be a useful tool for building credit ratings.
The problem lies with misuse, if one does not know how to handle and manage credit cards the right way, huge debts are the most common consequence. It takes a lot of planning and discipline before you go ahead and apply for a credit card. The huge responsibility it entails should always be taken into consideration. This is why we need to learn about the things that we need to remember before we apply for one.
1. Learn how to budget
Most users overspend because they don’t have a budget in place. It is tempting to just keep on swiping whenever we see a good deal, and this is what credit card users face all the time. You need to know how much you are making and how much you can spend on your card. What you should avoid is leaving a balance on your card that will cause high-interest rates to be charged to your account.
This can spiral up quickly and before you know it, you are already in huge debt.
List your income and details of expenses. The goal is to come up with a figure on how much you can charge to your account that you will be able to pay in full every month. Do not go over your budget and charge to your card.
2. Update your credit reports
There are companies who give out credit cards with generous rewards and low-interest rates but in order to qualify you need to keep your credit scores high. This is why you need to be updated when it comes to your credit reports. A free copy of three credit reports can be given to you every year. A list of all your loans will be included in your report and all that you owe on your credit card accounts. Late payments and missed payments will also show up plus bankruptcy if done within a 7 to 10 year period.
If you have reviewed your reports and find discrepancies, you can file for a dispute in order to improve your credit scores.
A high score shows that you manage credit well, you are always on time with payments and you have debts under control. It would be a good idea to build up your score first before you apply for a card. The benefits and rewards given by credit card companies can benefit you in the long run so being patient is the best move here.
Bad credit scores will limit your choices for a credit card.
3. Learn how to save
Aside from learning how to budget, savings is another important factor in managing your card well. Experts advise that you set aside at least 20% of your earnings for savings. A great practice would be to grow your savings to about 6 months to a year’s worth of your expenses that are set aside. You don’t know when emergencies can happen and you don’t want to use your credit cards in these situations due to the high interest rates that will be charged to you.
4. Have a stable income
You have to keep in mind that when you use credit cards, you are actually making loans because the money being used to pay for your purchases are not yours but the credit card company’s money.
It’s a quick loan that you need to keep paying in full as long as you use it. As with any other loans, huge debts and high-interest rates come when you fail in making payments. It’s not free money as some may think because it does come with a huge cost when abused and misused.
This is why you need to have a steady source of income before you even think about applying for a card. You need to be sure about your ability to pay for your “loans” every time you use your card. Having a regular job or getting a steady income from a business will increase the chances that you have in getting approval for your credit card application.