We know credit cards exist and how to get them but do we know what they really are and what consequences they can have on our credit score? How many people here have signed up for a credit card without knowing the interest rate involved, whether the credit application will have an impact on our credit score, and what the annual fee is?
Credit tactics and strategies are not taught in high school, barely any university courses even touch upon the subject and that is why I am here to explain to you how a credit card works and what impact it will have on your credit score.
Top 5 Things You Need To Know Before Applying For A Credit Card
1. A Credit Card Is A Loan From The Bank
A credit is just what it sounds like, it’s credit from the bank. Every time you’re using a credit card you’re borrowing from the bank with the agreement to pay this money back within 20 days or otherwise pay interest. This is very easy to forget, the reason is because the credit card is very accessible, it is right at your fingertips, and with just one swipe you can get whatever you like!
However, just as simple is the fact that you must pay this money back. The golden rule is, if the money is not in your bank account at the time of the purchase, you’re better off not making the purchase until you’re confident you can pay for it.
2. Ignoring Your Credit Card Statements Because of Not Being Able To Pay For Them
If you spent your credit card and can’t afford to pay it back, don’t ignore the statements and cut up the card as if it never existed. The smart thing to do is to call the credit card company to see if they can set up a special repayment plan to help you pay the debt faster.
This will deter any worse consequences on your credit score and help you get rid of the debt sooner. It will also lift that burden off your shoulders because running from the responsibility will not do you any good!
3. Late Payments
We’re not perfect human beings, there is error in everyone and being late on payments is one of those errors we occasionally make. The best way to avoid such a problem is to set up pre-authorized bill payments. This will ensure you’ll never be late on your payments and you’ll also have one less thing to worry about at the end of the month.
Having “past 30 days due” payment will be recorded in your credit history, will lower your credit score if yore late several times, and the history will stay there for 7 years! Yes, 7 years is a long time and it will be there for you to see for that long. Therefore, plan, organize, set up preauthorized payments and avoid silly mistakes.
4. A Credit Card Is Not Meant For Buying Candy and Coffee
A credit card is meant for bigger purchases, to finance larger purchases until your pay comes in next month or to pay for an item in instalments. It’s not meant for your day to day “convenience store” indulgences. The reason being is these little purchases such as $5 here and $3 there will add up and will cost you at the end of the month.
Keep you credit card for larger purchases such as buying furniture, clothing, electronics, groceries etc and use your debit card or cash for small things. This will keep you organized, you won’t have to go through 5 pages of credit card transactions trying to figure out how you got to a $2000 balance!
5. Applying For Every Credit Card Out There Will Kick Your Butt
Having every possible credit card is not an advantage. All you really need to have is a couple of credit cards, as long as you pay on time and not abuse the credit limit such as using the credit too often, then your credit score will be just fine. Having too many credit applications will hurt your credit score and likely increase the chances of you falling into debt and owing more than you can repay. Beware!