It is critical to properly manage your credit cards for your financial well-being. Poorly managed credit accounts can lead to debt and financial hardship, and poorly managed cards can jeopardise your identity’s security. Nonetheless, with a little forethought, you can keep your cards secure, get the best deal, and manage your debts.
Part 1 Understanding Credit Cards
1. Distinguish between charge and credit cards. Both credit cards and charge cards allow you to charge purchases to your card and pay for them later. Their similarities, however, end there. Unlike credit cards, which have a set credit limit, charge cards do not. Charge cards require that the month’s charges be repaid in full at the end of each month, whereas credit cards allow you to carry a balance between months and pay interest on that balance.
2. Understand the concept of interest charges. Credit cards charge interest on unpaid balances at the end of the month. So, if you charged $1000 to your card in a month but only paid $500 by the due date, you would owe interest on the remaining $500 balance. The interest rates charged range from 0% to 30%, depending on your specific card agreement.
Interest charges continue to accumulate on your balance for each month that it remains unpaid, so it is always best to pay off your card as soon as possible.
3. Understand your payment terms. Your credit card use will be governed by your card agreement, which specifies what you must pay and when you must pay it. It will also include any additional charges. Keep an eye out for your minimum required payment, which is the smallest amount you can pay each month without the issuer recognising a late payment.
You should also consider your available cash withdrawal options. If you need cash, you can use your credit card to get it, but there may be additional fees and interest charges.
A late payment fee will almost certainly be assessed.
4. Recognize the award options and limitations. The terms of your credit card may also include provisions for earning rewards based on how you use the card. These are frequently a small percentage of the amount charged to the card and then paid off. Depending on your card agreement, rewards can be redeemed for airline miles, free items, or cash. There will, however, be specific rules governing the accumulation and use of these rewards that you must be aware of.
5. Understand the impact on your credit score. The use of a credit card can have a significant impact on your credit score. A properly used and paid-off credit card, on the other hand, can improve a person’s credit score. This benefit grows over time as you continue to use the card correctly. However, if used incorrectly, it can have a negative impact on a good credit score. Credit card users are penalised by credit reporting agencies for late payments, high balances relative to credit limits (typically beginning at more than 30%), and defaulted accounts.
Part 2 Selecting a Credit Card
1. Investigate credit card companies. Credit cards are issued by a variety of institutions. Banks, finance companies, and retailers are all included. Your choice of issuer will be largely determined by the nature of the card, but it can be important in some cases. For example, getting a credit card from a bank where you are already a customer may make it easier to organise your payments or online banking.
Furthermore, if you spend a lot of money at the same store each month and that store has a credit card that rewards you for shopping there, it might make sense to get that card.
2. Recognize the importance of credit score requirements. Your credit score will influence the types of cards you can qualify for, as well as your credit limit, interest rate, and other terms. Before applying for credit cards, check your credit score to see what you can expect. Understand that if your credit is extremely poor, you may not be able to obtain a credit card at all (under 600). You may also be denied credit cards if you have too much debt or do not make enough money.
3. Choose between a secured and an unsecured credit card. Most credit cards are unsecured, which means you do not have to make a deposit to use the account. Those with bad credit, on the other hand, may only be eligible for a secured card, which requires a deposit. This deposit is usually around $200. Each month, you can charge up to that limit on the card. This can assist those with bad credit in rebuilding it.
When you upgrade to a regular card or close the account (assuming there is no outstanding balance), the money is returned to you.
4. Determine which issuer has the lowest interest rates. Compare different cards from different issuers using a site like NerdWallet or CreditCards.com. Make sure to enter your credit score so you can see which cards you might be eligible for. If you intend to carry a balance between months, look for the lowest possible interest rate. Look for a card with good benefits and rewards if you intend to pay it off each month.
5. Confirm whether or not there are any annual or one-time fees. When reviewing credit card terms, keep in mind to look for any associated fees. Many credit cards, for example, charge annual fees. Some cards may also have one-time fees that must be paid when you receive the card. Take note of any other fees that are mentioned. Your objective should be to obtain the card that will cost you the least amount of money to use.
6. Choose the best rewards card. Finding the right credit card rewards perks is a better deal, but there is no one-size-fits-all reward card for everyone. It is determined by your spending habits and lifestyle preferences.
If you travel frequently, an airline rewards card may be the best option for you. Some credit cards offer cash back, while others offer points that can be redeemed for a variety of goods and services. There are numerous websites where you can view and compare the rewards rates for various credit cards, but Nerdwallet has a number of excellent articles on the subject.
To get the most out of your rewards, make sure you pay off your balance at the end of each month. Otherwise, they are used to make interest payments.
7. Inquire about additional benefits. Many credit cards offer benefits that many people are unaware of, particularly in the context of travel. Many credit cards include rental car insurance (so you don’t have to buy it from the rental company), trip cancellation insurance, and other perks like fraud and identity theft protection.
8. Apply for your preferred credit card. When you’ve found a great credit card, click the links to apply. You’ll need to enter a lot of personal information, and the issuer will check your credit score and other information. These will be used to decide whether or not to accept or reject your application. If you are accepted, you will be given your credit limit and account information, as well as instructions for receiving and activating your card.
9. Request the most recent “chip card.” Although most people refer to them as “chip cards,” they are technically known as EMVs (which stands for Europay, Mastercard, and Visa). These cards contain computer chips embedded within the card. This makes it much more difficult to forge and thus more secure.
Your bank or card issuer will most likely send you an EMV card without you even asking. However, you may be able to expedite the process by making a specific request.
Part 3 Using Credit Cards
1. Keep an eye out for cards in the mail. You should have received an estimated arrival time for your credit card when you were accepted for it. Keep an eye out for it in the mail and bring it inside as soon as you get it. This will help to deter potential credit card thieves.
2. Note the card’s details in writing and keep them in a safe place. When you receive your card, you will be given a written card agreement. Make sure to thoroughly read the agreement. After that, keep your card agreement somewhere safe in case you need to refer to it later.
3. Use common sense when taking precautions. Just because you have a new chip card does not mean you are immune to fraud. When completing a debit or ATM transaction, you must still cover the PIN pad, investigate any online merchants you deal with, and only conduct e-commerce transactions on secure sites (sites with the “https” prefix).
You should make your PIN number as secure as possible. Don’t use your birthday or anything else that a thief could easily figure out.
While EMV cards are more resistant to skimmers (devices that steal your credit card information) than magnetic strip cards, nothing is ever completely secure. Because of PIN overlay devices that can capture PIN numbers, using your card as debit is currently a little riskier than using it as credit.
4. Limit your card’s use as much as possible. This will help you avoid overspending. While no one wants to overspend, it’s very easy to do with credit cards. To avoid getting in over your head, try not to charge more in one month than you can live without.
For example, if you spend $300 per month on restaurant meals, you should be able to charge $300 on your credit card for the month and then make up the difference by eating less out.
However, you can and should use a credit card for monthly business expenses, emergencies, and assets that will last longer than the time required to pay them off.
5. Every month, go over your credit card statement. Examine your credit score once a month to ensure that your charges correspond to your own records. Make a note of any charges you don’t remember and try to find receipts or an explanation for them. If you discover charges that you did not authorise, contact your issuer to dispute the charges. Most credit card companies are eager to assist in resolving these issues.
6. On time payment is required. Late payments are the most common way to damage your credit score. They account for approximately 35% of your credit score, making them the most important single factor. So do everything you can to keep up with them.
Set up an automatic payment plan with your bank so that your credit card bill is automatically drafted each month from your checking account.
7. Each month, pay as much as you can. If possible, try to pay more than the minimum. This will keep your balance and interest charges as low as possible. Making the minimum credit card payment is the simplest way to never pay off the debt. While it may be a less expensive short-term financial burden, you may end up paying many times more in the long run.
It makes a big difference even if you only pay a little bit more than the minimum.
8. Check to see if you are eligible for any special benefits. If you use and pay your credit card responsibly, you will gain the trust of your credit card issuer. You can try contacting the issuer in the future, perhaps after a few years, to negotiate a more favourable card agreement. You could, for example, request a lower interest rate, a lower annual fee, or a higher credit limit. If you’ve been a loyal customer, the issuer may agree to your request.
Part 4 Managing Credit Card Debt
1. Consolidate all of your credit cards into a single account. If your debt becomes unmanageable, consolidating your balances onto a single card may be beneficial. When you choose the card with the lowest interest rate, you save money when you pay off your balance. Even though many balance transfers may incur fees (though some do not), it is usually worthwhile to switch to a card with a lower interest rate because most people who want to transfer a balance will not pay off the balance quickly enough to lose money on the transfer fee.
Again, Nerdwallet is a good place to find a variety of balance transfer offers in one place.
Avoid using your credit card until the debt is paid off.
2. Stop charging to your credit card. The most effective way to avoid debt accumulation is to stop using your credit card. To prevent yourself from doing so, place your credit card in a block of ice. This effectively prevents you from using it until the ice melts, giving you time to reconsider your purchase before proceeding. This is also useful if you only intend to use your credit card in emergency situations, as it makes access much more difficult.
3. Speak with your creditors. Before you fall too far behind on your payments, you should contact your creditors and inform them of your situation. They may be able to work out a payment plan, refinance, or simply give you some breathing room to catch up.
If you are a long-term customer who makes on-time payments, you can often negotiate better terms with your card issuer. Request that they waive your annual fees, increase your credit limit, or lower your interest rate.
Even if you have previously missed payments, it never hurts to inquire. They would frequently prefer to keep an imperfect customer than lose the same customer to a competitor.
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