How to Handle Your First Credit Card?
Credit card companies are increasingly targeting college students and new professionals because of their high-spending habits and the track record of carrying balances on credit cards. It may be a good business deal for the credit card companies, but irresponsible handling of credit cards can drastically dip your credit score and ruin your financial future.
There are many banks and card issuers that offer a first credit card for students. Such cards come with numerous benefits and thus do not fail to attract the attention of students. However, they also entail certain fees and charges. Students, usually have a student loan on their heads, and with reckless use of credit cards, they may already be in debt before they start working. It is a total money nightmare.
So, if you have also got your first credit card ever, there are a few things you need to understand about handling it.
Understand how credit cards work
Just as you read the manual before using a gadget, understanding the terms and conditions of your credit card also makes you a smart user. Talk to your parents to find out how a billing cycle works in the credit card and what all fees and charges are associated with the usage. The most important thing is the payment schedule. You credit card document will have the billing date and the due date; use them smartly to make the most of your credit.
Pay your bills on time
Credit cards are a helpful financial tool only until you make regular payments towards them. Non-payment of credit card balance in full results in finance charges which are quite expensive. So, the basic rule of using your first credit card is to avoid any late payments. Always pay the total amount due on the credit card; never settle with the minimum payment just because your credit card issuer allows it. When you make the minimum payment, the outstanding balance gets rolled over to the next billing cycle and accrues interest on a daily basis.
Keep a low credit utilization ratio
The ratio of your outstanding amount to the total credit available to you is referred to as the credit utilization ratio. Lower the ratio, higher will be your credit score, and better will be your chances for loan approvals in the future. People who have excellent credit scores usually have a utilization ratio of less than 10 percent. As a first-time user, you should understand the importance of credit utilization ratio and try to maintain as low a ratio as possible.
Keep a check on your statements
It is essential to check your credit card statements regularly to keep a check on your transactions. It will also help you find out any fraudulent transactions made on your credit card and resolve them at the earliest. Credit card companies usually send monthly statements on your registered email address. You can also go to your bank’s portal to check your statement. For example, First Premier credit card sign in will let you check your First Premier credit card statement.
Set a budget on your credit card
It is a good practice to set a budget on your credit card so that you do not go overboard with the credit available to you. Some banks offer this facility; you must talk to your card issuer about it. If not, you can make disciplined usage on the card in a manner that you only spend as much as you can afford to repay.
What are the alternatives?
While credit cards are not so bad, you can choose some alternatives if you are not sure whether you can handle a credit card yet. These include-
- Secured Credit Cards- Issued against a deposit, these can be an excellent alternative option. You have to make an upfront deposit, and a card will be issued to you with a credit limit of 80-100 percent of the deposit amount. If you are not able to pay the bills on your secured credit card, the bank will forfeit your deposit and use it to pay the balance.
- Become an Authorised User- Another option is to ask your parents to make you an authorized user on their credit card or get an add-on card issued in your name. This way you will be able to understand the workings of a credit card without hurting your credit profile.
Your first credit card can be a great financial learning experience. So start after a good research and use the card responsibly.