5 Tips for credit card beginners
It’s thrilling to get your first plastic card and savour the financial freedom that comes with it. However, its unfettered usage can easily lead you into a debt trap, so swiping it judiciously is important.
Some points that you should keep in mind before you start using the credit card.
Stick to a budget
The convenience of a credit card could result in your financial downfall as you may end up spending more than you can afford. You won’t face this problem in the case of cash as you can spend only what you have. So, if you’ve just begun to use a credit card, keep a monthly limit for your expenses, which should be about half of your official credit limit—and stick to it. A good way to track your spending is to register your phone number with the credit card account. Every time you swipe the card, you will receive an alert on your mobile phone, informing you of the amount you have spent and the balance in your card.
Always pay the full amount on time
Each month, you will receive a bill, also called a statement, telling you how much you’ve spent in a month using your card and the date by which you will have to pay the amount. Ensure that you pay the entire sum on time or you will be charged a late fee. You should preferably do so through Net banking as you will be charged about 100 if you pay through cash at the bank. You can also write a cheque, but do so well before the due date since it will require a few days to be processed.
Don’t be tempted to pay only the minimum amount that is due and roll over the balance to the next month. This may seem an easy way out if you are short on cash, but it will be your first step into a debt trap. The amount that is rolled over is charged a high interest rate, typically 1.5-3.5% a month, which will obviously inflate your bill for the next month. Another problem is that too many rollovers will be a black mark on your credit report, and a low credit score will make it difficult for you to get a loan from a bank at some point in the future.
Secure your card
Don’t provide your credit card information to anybody, especially the CVV number behind the card. Also, you should never let anybody use the card as you are responsible for all the charges. When you give your card to be swiped, make sure the salesperson does so properly and that there is no chance of skimming, that is, your card information being stored somewhere else. While using the card for an online payment, ensure that it is a trusted website. Fortunately, there is a two-step verification for such payments, the secure password of the card provider (Visa or MasterCard) as well as the one-time password that is mailed or messaged to you. Keep track of your usage through charge slips and compare records when you receive the statement.
Don’t increase your credit limit
When the bank offers you a card, it will set a credit limit based on your income. You may be tempted to enhance this limit to fund more expensive purchases. However, avoid doing so for a year, or at least till you’re more confident about how to use your card. The bank may be willing to raise the limit, but you still have to pay the bill from your own pocket, don’t you? So, unless there’s a substantial increase in your salary, stick to a low credit limit. In fact, you should fix your own limit and adhere to it. When your expenses reach this threshold, stop carrying the card and use cash to pay for your purchases.
Avoid cash advances
Don’t use your credit card to withdraw cash from a bank or an ATM. The money that you withdraw is considered a cash advance and you will have to pay a very high interest rate, typically from 1.5-3.5%. The interest will begin to accrue immediately and accumulate till you repay the full amount. There is no grace period for such transactions, unlike the one you enjoy on purchase transactions. Besides, you will be charged a one-time transaction fee, which could be as high as 3% of the advance. So, you should opt for this route only in case of an emergency.