In the contemporary world, usage of credit cards has become extremely common as they are equipped with numerous benefits. Besides helping you to build your credit and get future loans like mortgage, these cards also aid in obtaining approvals for apartments, stores, lease on land, etc. Credit card holders can benefit from getting lower insurance premiums.
So are you all set to get your first card? Let us glance through few things that you need to keep in mind as a credit card seeker:
The necessity of a credit card: One of the most efficient ways of building credit is to know how to make use of your credit card in a responsible way. However, credit card seekers face quite a few challenges while trying to get their very first card. Without any existing credit history, a person shall have limited options when he tries to apply for his first card as many cards have qualification requirements that reject applicants without credit histories. Getting someone with good credit to cosign is something which can bail you out of your situation, but it has its own share of cons as well. In case of a missed payment, the lender can go after both you and your cosigner, as a result of which the credit scores of both of you can go down. There are a whole lot of perks that a credit card brings. These days, cards come with travel or shopping benefits such as extended warranty, rental car insurance, purchase protection etc. Be smart enough to check your benefit statement once you get your credit card.
Advantages of a secured credit card over an unsecured one: Before applying for a credit card, you should understand the difference between a secured and an unsecured card. Backed by a cash deposit that equals to the card’s limit, secured credit cards remove the risk of non-payment. The payment can be extracted from your deposit if you cannot pay back the balance on the card. Unsecured cards are not backed by any kind of cash deposits and can be difficult to obtain if you do not have a decent credit score or history. As you shall get the credit card as per your income level and history, it is most likely that the credit limit will be low.
How your credit score is affected: There are several ways in which credit cards can affect your credit score. If you make all your payments on time, your credit score shall be affected in a positive way. The 5 factors that go into your FICO scores are payment history, length of credit history, credit utilization, types of accounts in use and new credit. Your score may take a hit when you apply for a credit card, hence it is advisable to avoid applying for several cards in a short span of time.
Why an EMV chip matters: The small microchip or EMV chip that is embedded in your credit card has two card verification methods, CVMs (chip-and-signature and chip-and-pin). Popular in the US, the former is used to verify ownership for purchases. The latter that is more popular in Europe uses a four to six digit pin for verification. Considered to be more secure than conventional magstripe cards, these chips transfer data between the card, the terminal and the acquiring bank’s host.
Host of credit card fees that you may be charged:
Annual fee: Annual fees are charged on most secured and certain unsecured cards. As for unsecured cards, annual fees are charged on high-value reward cards. You can avoid the costs by getting a card without an annual fee.
Foreign transaction fee: Whenever you make a purchase overseas, this fee is charged between 3% and 4% of your purchase.
Balance transfer fee: 3% to 4% of balance is charged when you transfer a balance from one card to another.
Over-the-limit fee: According to the Credit Card Act of 2009, you have to opt for this fee if your balance exceeds your credit limit.
Late payment fee: Charged when the minimum payment is not paid within the due date on your credit card statement, this fee can be easily avoided if you make your payments on time.
The grace period: Among the wide array of benefits that a credit card offers, the most beneficial is the interest-free loan and a grace period of 21 and 25 days. Suppose you have a credit card period of 5th Jan through 4th Feb with a due date of 1st March, all the purchases done within this period shall be interest-free until the payment due date. In case you do not pay your full balance on or before 1st March, you shall owe interest on your daily balance.
Procuring your first credit card may be a bit difficult, but it is not a herculean task. When applying for your first credit card, you can definitely ask someone known to you to cosign. Credit cards surely prove to be of a great help and can make your life easier, but if not used wisely and responsibly, these can become a huge financial burden. All you can do as a credit card seeker is to keep a tab on all your purchases, not spend outside your budget and pay off all the dues at the end of each month and enjoy the manifold benefits that a credit card brings.