Getting Your First Credit Card? Here’s A Detailed Guide On Your Choices
With tons of credit cards available in the market and each with unique benefits, it is imperative to shop around to apply for the one that best suits your needs.
Think about how and why you will use your credit card. The reasons could be to purchase commodities, pay your bills or spread the cost of a transaction.
If you can pay the dues in full and on time, you can seek advantage of the interest-free period. Here, the interest rate might not be as significant but consider looking at cards that offer incentives, such as cashback.
If you wish to use your card for borrowing and cannot pay off the balance each month, an interest rate will always tag along. Here, you must consider choosing a card that offers a lower interest rate.
If You Have Initially Applied for Credit Cards
If you have applied for too many cards or often switch between cards or banks, it can influence your credit rating negatively. Each time you apply for a credit card, it gets recorded on your credit report.
Your file will also mention if an application gets refused. When new lenders analyze your credit file, it can look like you own several cards already or that no other lending firm wishes to lend to you.
A Checklist to Help You Pick The Right Credit Card
Here is a checklist that you must ensure when you are on the lookout for a new credit card in the market:
Annual Percentage Rate (APR)
APR is the cost of borrowing on the card if you do not settle the entire balance off every month. It is advisable to compare the APR for different cards, which will help you pick the cheapest. Be sure to weigh in other factors such as fees, charges, and incentives.
If you do not settle the entire dues each month, you will get prompted to repay a minimum sum. This sum typically lies around 3% of the balance due or GBP 5, whichever is the higher value.
Annual Fee and Charges
Some cards impose a fee every year for usage of the card. The charges get included in the amount due, and you are required to pay interest on this fee and your expenditures unless you settle the entire amount.
Also, be sure to check in the credit agreement regarding other charges that might get imposed later on the card. You will typically get charged for exceeding your credit limit, for using the card overseas, and for late payments.
Introductory Interest Charges
Introductory interest charges are where you start off paying a low-interest rate or none at all. This rate gradually increases after a certain period. For instance, it could go up after six months or from a particular date.
You will often find an introductory rate for balance transfers. Be sure to check out how long the introductory rate lasts and the interest rate it charges to when this period ends.
Loyalty Points or Rewards
The points add up with the amount you spend, and you can then redeem them to purchase goods in certain stores. Be sure to learn how and where the rewards can get redeemed and how likely will you use them.
If you seek bad credit loans, you can look for sources that streamline the borrowing process and make it completely transparent for the borrower, regardless of their credit score.
Cashback is where you get the money refunded to your card according to the amount you spend. Be sure to confirm that you are likely to qualify for the cashback incentive.
For instance, it may only be applicable if you settle your balance in full every month. A lower interest rate might be a better deal.
Comparing Credit Cards
Here are some tips that can help you compare credit cards in the market and pick a suitable one as per your needs:
Key Information to Target
When you receive information about a credit card, ensure that it must comprise a summary box with standard key knowledge about the credit card. This information must include the interest-free period, interest rate as-well-as other applicable charges.
This knowledge is advantageous as it gives you direct insights into a lending firm and its terms, helping you juxtapose it next to other cards in the market.
Use a Comparison Website
You can visit a comparison website to check what different credit card providers have to offer. This way, you can pick the right card that suits your needs.
There are several comparison websites; however, not all credit cards will be on all sites. Therefore, you might have to search around for a specific product.
Applying for a Credit Card
Here are some ways through which you can apply for a credit card:
- Through phone
- Via post
- At a bank or building society.
You will be required to fill in a form, and the credit card provider will corroborate your credit record with a credit reference firm to check if you are creditworthy.
Your credit record tells about how you deal with your finances, such as your bank account, and how likely will you settle your dues in time without defaulting.
This information tells the provider whether you are a reliable payer and have had any court orders in the last six years. You can also check your credit record yourself by connecting to one of the credit reference firms for a small fee.
Signing a Credit Agreement
If your application gets approved, you will get prompted to sign a credit agreement. This is a legal document that lays out the agreement terms between you and the provider.
The credit agreement comprises details such as how much you are allowed to borrow and when to settle dues, the interest rate, as-well-as the charges applicable.
This agreement also states your rights and obligations under the agreement and any other conditions that apply to it. Be sure to read the small print so that you are fully aware of the agreement terms.
With dozens of options in the market, it becomes obligatory that you shop around when picking a suitable credit card that complies with your needs. It is also imperative to go through the terms and conditions thoroughly before you sign up for anything.
Look for cards with low interest rates, which can save you from hidden charges and help you make timely repayments without defaulting.