Found that classy new phone online that is a must have? Key in 16 digits, hit the purchase button and it’s ours. Going shopping but out of cash? Just whip out the plastic and those cute shoes go home with us.
The reality of what was spent won’t show up until the credit card statement arrives, possibly weeks later. A credit card account is one of the most slippery financial tools people own.
That’s why every card user needs to understand their primary responsibilities and the trickle-down effects of their spending behaviour.
Sure, a credit card may be useful in an emergency or for a little extra help out, and is a recognised tool for building a credit history. However there are many aspects we need to be aware of before submitting our new card application.
All credit card contractual terms include some qualifications that every account holder must have. This is called minimum eligibility. Most companies require that the account holder be at least 18 years old, that is, legally an adult.
An applicant must usually prove a predetermined annual income, a requirement that ensures that the holder can pay their bills on time.
This income level varies from one country and one credit card provider to the next, so it’s best to check with the provider where we want to apply.
Once we have applied and have been approved for a credit card, keep in mind all the things that we should and should not do to keep our credit history clean, and to protect ourselves from accruing a pile of debt.
• Not paying the credit card balance
Not paying the credit card balance can be very dangerous in both the short and long-term.
When we don’t fully pay the monthly balance on that card account, we rack up a huge amount of interest on top of owing all that money spent.
Also, the holder will get slapped with a late payment fee. Paying less than the minimum required balance is considered delinquent.
• Paying the minimum balance
While the credit card company stipulates a minimum amount to be paid, paying only that amount means we continue to rack up more and more interest.
If we pay more than the minimum due, we can chip away at the balance, thereby decreasing the amount of interest to be charged.
• Taking a cash advance
When in a bind and needing cash, it’s possible to get a cash advance on our credit card. This means taking a small loan against our card, which we will have to pay back at a later time.
Think long and hard if this is the best option because many fees can pile up during the period we are paying it back. The interest rates are normally high.
• Not maximising rewards
Every credit card company offers a slew of perks to their customers. The details depend on how long we have been a customer and what type of card we have.
As a credit card holder, we can get a discount and exchange points for air miles, hotel stays, and other benefits.
To make sure that we don’t lose such rewards, we need to spend a minimum each month, pay bills on time and not allow points to expire.
It can be a huge benefit if we find ourselves in a situation where one of these rewards works for us.
This article first appeared in thenewsavvy.com
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