A “first” credit card can be exciting, tempting and intimidating. Credit cards are a great convenience, but they are also borrowed money that must be repaid. Here are some ideas to keep in mind as you get your first credit card and use it.
Choosing a credit card – fees, interest rates and benefits
Ideally, the credit card you choose should have the lowest fees, the lowest interest rate and provide the most benefits when you use it. Unfortunately, a card that has all three is difficult to come by.
Choosing the card that is best for you involves weighing these factors, and considering how you will use it. Whether it’s a personal or business card you’re looking for Standard Bank has the right choice for you.
Annual fees and late fees can vary from zero to $75 per year. It is preferable to choose a card with no annual fee. Generally, cards that charge annual fees provide benefits like airline miles. There are also fees that companies charge for late payments. Be sure to check the terms of the credit card agreement, especially if you anticipate an occasional late monthly payment.
Interest rates can also vary greatly, and can exceed 20%. You should also be very careful of low “teaser” rates, or special rates for a limited time if you transfer balances from another card, as well as transfer fees. Another way issuing companies increase the amount you pay is by how they calculate the interest. Be sure to read the details of the agreement.
Many cards offer benefits for using the card. Using a credit card can bring the rewards of airline mileage, travel discounts, electronic gifts, discounts on gas or groceries and other benefits. A rule of thumb is that the benefits are usually worth about 1% of the charges. If a card with these types of benefits is important, make sure the benefits are those you will use and that other aspects of the card do not offset the benefits.
Be sure the credit card you choose provides the right combination of fees, rates and benefits. If you do not carry over balances and pay finance charges, you might be willing to accept a card that has high rates and maybe even an annual fee if the benefits are your main focus. However, if you normally pay finance charges or interest, pay extra attention to the interest rate.
Guidelines for using your credit card
- A credit card is serious business. The issuing company is lending you money and you are responsible for paying it back.
- One card is enough. Avoid temptation by only using one card.
- Keep the credit limit low. Depending on how you are going to use it, $500 or $1000 is high enough for most first-time credit card users.
- Pay off the entire balance each month. Avoid charges and build a good credit record.
- Make the payments on time. This helps build a clean credit history, and avoids late payment charges.
- Save the card for emergencies. Start off slowly with this new convenience. Keep using cash and your debit card for most purchases, especially until you get comfortable with the credit card.
- Never let others have access to your card. You are responsible for all charges on your card.
- Keep track of your use of the card and compare your records to what shows up on the monthly statement.
- Keep the card active. Even if you are only using the card for emergencies, use it for small purchases every three or four months just to keep it active. Then be sure to pay off the balance before any interest is due.
- Avoid using the card for cash advances. The interest rate charged for advances is usually high and interest is charged immediately.
- Create a spending and budget plan. It is wise to not let your credit card payments exceed 20% of your monthly income. If having a credit card turns out to be a problem, get rid of it or stop using it for a while.