What to Do Before Applying to a Credit Card
Protecting your credit is top priority. Before you mail off that offer, apply online or via telephone, learn some basic information about how to best use credit cards, what an APR is, how credit cards affect your credit, and more. Managing a credit card is important, especially if you want to properly manage your overall credit.
Establishing Credit
Opening a credit card has many benefits. It can help you establish a credit history. If you have never been extended credit, applying for a credit card is the best option, as long as you use the credit card responsibly. Make sure the credit card you apply for reports to the credit bureau. A positive credit report and rating could help you establish credit, which is necessary when you want to finance a house, car, loan, or any other type of large purchase.
The APR Matters
When you receive an offer, always check the annual percentage rate (APR) on the credit card. The APR is the annual percentage rate of interest. This rate will determine how much you are charged if you do not pay off the entire balance of the credit by the due date. The APR is generally determined by your credit rating. If you do not have credit history, the APR could be higher because lenders do not know how you will repay the debt, or if you will use your credit card responsibly. The lower the APR is, the better your credit is. Avoid credit cards with an APR that is above 12 percent. Try to get a 0 percent APR offer if possible.
Look For These Benefits
Be sure to research credit card companies beforehand; know as much about the credit card benefits and fees as possible. Annual fees are charged by the credit card lender. Try to find the credit cards that have no – or low – annual fees, as well as promotions that waive the annual fee for the first year. Verify other fees before accepting the credit card. Those fees include cash advance fees, user fees, over-the-limit charges, and any additional fees that are associated with the credit card. These excess fees could cost you more money than the line-of-credit is worth, which is why you need to know what they are before you accept the credit card offer.
There are many benefits associated with a credit card, such as insurance. The insurance could apply to your home, purchases, and car rentals. Make sure the offer includes credit card protection. This is necessary in situations when your card has been lost or stolen. Third party merchants and businesses often offer discounts to customers of certain credit card companies. Verify what rates and special discounts you have access to before opening your credit card. For instance, some airlines offer points that can be used for miles, and hotels or resorts may offer free night stays once you acquire a specific amount of credit card points.
Cash back incentives are one of the most popular benefits that customers look for when choosing a credit card company. This reward program actually gives cash back to the card holder when purchases are made.
Pay Off the Balance
Paying the minimum amount each month does not actually help with the credit card balance, which is why you should pay more than the minimum amount due if you are unable to pay the balance off in full. Always pay for purchases with cash first; keep the credit card as your last option. If you must use your credit card, try to make a budget and plan to pay the credit card balance off by its due date so you can avoid finance charges and interest fees. Doing so will help you avoid paying out more than the actual purchase made.
Keep Track of Your Purchases
It is easy to buy something today, and forget about the purchase tomorrow. Losing track of credit card purchases could be bad for your credit, especially when the bill comes and you do not have the money to pay for the purchase. Also, try to pay the bill in full before making more purchases. When you allow your balance to increase, this has a negative impact on your credit report. The unpaid balance makes it seem to other lenders as if you are unable to pay your bills in full and on time. High credit card balances could be a sign that someone is not responsible enough to budget. Before you know it, your credit card balance could begin to snowball, and if you are making only a minimum payment, that payment is only paying interest, while your balance remains the same. This could impact you with other lenders and future purchases, including buying a home, car, obtaining insurance, and even when you apply for a job – specifically those employment opportunities that involve finances.
Credit Card Limits
Regardless of how many credit card offers you receive, limit the amount of credit card accounts that you open, independent of how great the offer is. Only open a credit card that you absolutely need. Opening too many credit card accounts could negatively affect your credit score and credit rating. The other downside to opening up too many credit card accounts is the temptation to use them. Multiple cards could tempt you to make unnecessary purchases, which leads to spending beyond your means.
Credit Report Monitoring
From time-to-time, you should order a copy of your credit report. Once you apply for a credit card, many lenders will have access to your information, and unfortunately, some thieves could too. To avoid becoming a victim of identity theft, monitor your credit. If you notice that other credit cards have been opened, or there are lines of credit on your report that you did not open, contact the credit bureau to file a claim immediately. You will need to contact that lender to close the account as soon as possible. Call the police and submit a report. Be sure to check your credit report to see if any credit inquiries have been made on your account. This is when someone applies for credit, but they are denied, or did not open the credit account. Monitoring your credit report is necessary when it pertains to managing your credit rating and score.
Before You Apply
Remember that even though a credit card can be a great financial tool, it could also end up causing a lot of damage to your credit. Carrying a credit card may be more convenient than walking around with cash, but if you are not responsible with the credit card, you could end up spending more than you can afford. Here are 6 important rules to remember:
- Never make purchases that you cannot afford to pay back.
- Use the credit card in cases of emergency only.
- Always choose the credit card with the best interest rates.
- Pay the balance in full – or more than the minimum payment due.
- Check for errors.
- Always be responsible.
Managing a credit card is important; your credit rating and score could depend on it.
