For those that are young and/or just starting out credit cards are certainly convenient and can help you establish a good credit history.
So, How to use your credit card to establish a good credit history 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.
The first step to using your credit card to establish a good credit history, is to understand the jargon.
Credit Cards: This is a card issued by a financial institution that allows the cardholder to use credit to purchase goods and services up to a predetermined limit. The cardholder gets a monthly statement and then he/she has to pay back. There is an interest on the amount credited.
Credit Limit: This is the maximum amount you are allowed to spend on the credit card. How much credit limit you get depends on you credit history and the type of credit card you own (gold or Platinum Cards).
Credit History or Credit Scoring: This is your track record of how you have paid accounts in the past. It is important from the creditor’s point of view since it determines whether you are likely to pay accounts on time in the future or not.
Annual Percentage Rate (APR): It is the annual interest rate or percentage you pay on the outstanding balance of credit as an interest or fee. It is also called annual interest rate.
Annual Fees: Annual fees is basically a maintenance fee that the credit card issuers charge from the cardholders annually against the costs incurred in maintaining accounts and providing services.
Introductory Period: Credit card market is highly competitive in UK so a number of credit card companies offer a low rate of interest on outstanding balances on your account for an initial period.
This initial period is called introductory period, which can last for 6 to 12 months depending on the offer.
Reward Program: It is a point-accumulating program based on purchases or transactions made on your card. You can redeem your reward point against cash back, discounts or free air miles according to the program you enroll for.
PIN (Personal Identification Number): It is the secret code chosen by you for your card. You can access your money and perform banking transactions through the ATM or make purchases without signing a sales receipt at merchants that have PIN pads, using this code. Don’t share your PIN with anyone.
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 paycheck. Some credit cards require a minimum income level or charge an annual fee.
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 cash back 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 every body 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. If you don’t have the money to cover your purchases, you will definitely feel the discomfort that a large balance brings.
- Impulsive purchases – Think about the purchase and why you are buying. Do you really need it? Don’t let the ease and convenience of credit be the driver for purchasing the item.
- Overusing the card – Credit cards aren’t a substitute for saving and budgeting. When you can’t afford to go to the movies, don’t think of your credit card as a saving grace.
Use Your Credit Card as a Tool
A credit card can be a tool that you use to your advantage. If you play your cards right you’ll prove to creditors that you are a person who can take care of business in a mature and responsible way.
And a few years down the road, you’ll have a good credit history. Now that’s impressive.
Are you ready to increase your credit score? If so, check out the companies recommended to you by Inker Street Consumer Credit Advice.
- For fast and effective credit repair with pay after service and a 100% guarantee we recommend CreditRX America.
- Find A Solution To Your Debt Issues with CuraDebt
- Credit Saint – Ranked #1 Credit Restoration Service
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