Each year, millions of people who have never used a credit card before take the plunge and remove the protective stickers. Many of the new cardholders will likely incur debt and have their credit negatively affected as a result of reckless usage of their cards.
Enjoyment can be had using credit cards. Their convenience is often overlooked. You can get whatever you want, whenever you want it, pretty much everywhere in the world. The punch line is right there. It’s simple to make mistakes with credit cards and developing credit if you don’t know what you’re doing, and unfortunately, very few of us get that knowledge in school.
Good news is that you don’t need a degree in finance to learn information essentials for new credit card holders. The following are ten tips for new credit card holders to keep their finances on track.
Here are top 10 Information essentials for new credit card holders for 2023:
1- set your prices realistically:
Don’t put more on your credit cards than you can afford to pay off quickly; this may sound like common sense, but many individuals still make this mistake. Anyone who has recently received their first credit card may feel the want to go on a spending binge. However, doing so is a certain way to quickly find themselves in over their heads financially.
Credit cards are a great way to make purchases quickly and easily, but they also come with the risk of overspending, especially for first-time cardholders. Treat your credit card like a debit card and stop thinking of it as “free money,” because it is not. Do not charge something if you do not have the funds to cover it. (Both seasoned and inexperienced cardholders should take note!)
2-To avoid late fees, always send your payments on time:
One of the most important things we can stress is the importance of paying off your credit card balance each month.
If you use your credit card responsibly and charge no more than you can afford to repay in full each month, you’ll avoid incurring interest charges. Full payment is always preferred, but if you can’t do that, at least send in the bare minimum before (not on, but before) the due date.
In other words, first-time credit card users should not worry much about being a day or two late with a payment. If you are even a few days late on a payment, you will be charged a late fee and, with some cards, your interest rate will increase (called a penalty APR). It won’t have any negative effect on your credit score, though.
However, if you’re 30 days late or more, that late payment will be reported as a delinquent. A single late payment can have a negative impact on your credit for as long as seven years, making it the single most critical element in your credit score.
Can’t seem to keep track of deadlines in the past? When using credit for the first time, it’s a good idea to set up automatic payments to cover at least the minimum balance each month. This will help you keep up with your payments even when life becomes hectic.
3- Don’t simply pay the bare minimum:
Therefore, the “at least” is pulling its weight when we ask you to commit to making at least the minimum payment on time every month. It’s a recipe for financial disaster to make only the minimal payment.
The interval between the end of your statement and when your credit card bill is due is called the grace period. Before the end of the grace period, or before the due date, you won’t be charged any interest on your debt if you pay it in full.
But if you merely pay the minimum each month, you’ll soon find that your debt is much larger than you thought. Truthfully, the minimum payment isn’t set up to assist you pay off your balance quickly, but rather to help your card issuer generate money off of interest rates.
Read more about: UNDERSTANDING THE CREDIT HISTORY REPORTING SYSTEMS: HOW CREDIT WORKS
Take this as an illustration:
Let’s say you owe $5,000 on your credit card and your minimum payment is 3% each month, at an interest rate of 15%. The minimal payment plan will take more than three years and cost you almost $1,500 in interest to clear the balance.
If a person who has never used a credit card before swipes without thinking about their spending habits, they could quickly find themselves in over their heads. Don’t get into the trap of carrying a balance on a credit card you can’t afford to pay off each month.
4-Acquire an understanding of pricing strategies and pitfalls:
When your only tool is a hammer, every problem starts to appear like a nail. Many people who have never used a credit card before have the misconception that they can use their card to pay for anything. Don’t bother reading any farther; they’re not.
Using credit cards is a convenient and secure way to pay for most everyday expenses. Certain products, however, should never be packaged in plastic. For instance, if you need time to repay a debt, a credit card isn’t the best location to put it; instead, look into loans.
Utility bills, rent, mortgage payments, and other transactions that incur a credit card processing fee should be paid by other means before being charged. Costs associated with these extra charges can increase the overall sum owed by an additional 2% to 3%.
Credit card companies typically see purchases of lottery tickets, bets, or money orders as a cash advance, so bear that in mind if it’s your first time using a credit card. A cash advance will cost you in both transaction fees and interest from the moment the money is deposited into your account.
5. Be selective in your card selection:
You should prioritise finding a credit card that works well with your lifestyle and budget, as there is significant variation among these financial tools. Sign-up incentives and the promise of substantial rewards often entice people to apply for their first credit card, but everyone should read the tiny print before making a decision.
At first glance, the shop credit cards that are ubiquitous at checkout registers may seem like a terrific idea; after all, who wouldn’t want to save $20 on today’s purchase? However, retail credit cards sometimes carry exorbitant interest rates, and the cards themselves (as well as the benefits they offer) are typically only redeemable within the store where they were issued.
The credit card market is not very robust when you’re first starting off. Students can benefit most from using a student credit card, which can come with attractive perks. Getting a secured credit card is a good idea even if you aren’t a student. Secured credit cards function the same as unsecured ones, with the exception that they need an opening deposit that is later returned to the cardholder. Rewards programmes are available on several secured credit cards.
The number of new credit cards a person with no credit history opens should be low. There are many ways in which a new credit card account can affect a credit score. A hard inquiry, such as when you apply for a credit card, can cause a temporary reduction in your credit score. The average account age and the new accounts factor change whenever you open a new credit card account.
6- Be wary of hidden costs:
Credit cards may be physically constructed from plastic (or metal in rare situations), but in reality, they are made entirely of interest and other fees. Credit card fees are detailed in the cardholder agreement, often taking up a whole page.
Even first-time credit card holders are likely to have heard of annual fees (paid each year to keep your credit card account open) and interest rates. However, these are not the only possible fees imposed by your card issuer.
For example, if you ever make your payment after the due date, you will incur a late fee. In the event that payment is rejected, you may additionally be charged a returned-payment fee.
Some sorts of credit card transactions include additional costs, which first-time cardholders could overlook. Fees are typically assessed as a percentage of the amount being transferred, making balance transfers costly. A transaction fee is also applied to cash advances (or purchases labelled as such). Many credit cards also tack on an extra cost for using the card abroad.
7. Look for errors in your reasoning:
Your credit card statement will arrive monthly. Those who have never used a credit card before may be tempted to quickly scan the statement for the balance and then toss it. Look through the whole amount due instead.
Have you heard about all the possible fees? Make sure the credit card company knows if your credit card was used without your permission or if the information on the card was stolen.
Keep an eye out for credit card fraud; it happens frequently (even to first-time cardholders). Any unauthorised transaction, no matter how small, should be reported because it could be part of a larger scheme in which the criminal is testing a large number of card numbers in order to determine which ones would allow him to make the larger charges he intends.
If you report suspicious charges, the issuer can take steps to prevent further fraud, and you can rest assured that you won’t be charged for anything you didn’t actually purchase. If someone uses your debit card without your permission, you can be held legally responsible for up to $50 in charges. You probably won’t have to worry about paying for anything you didn’t buy, though, because your issuer likely has a zero fraud liability policy.
8-Credit reports should be checked annually:
Good credit is essential in the financial sector. In order to determine whether or not to extend credit, loans, or mortgages, creditors check borrowers’ credit reports.
Credit reports are available from the big three American credit reporting agencies, Equifax, Experian, and TransUnion. Information on your debts, repayment history, and active credit accounts (including credit cards) are all included in your credit report.
Because most people who apply for their first credit card have little in the way of a credit history, the reports that credit bureaus pull on you may not show anything. Still, once a year is the bare minimum for reviewing your credit reports to make sure the information is accurate.
Visit AnnualCreditReport.com once a year to get a free copy of your credit report from each of the three major credit reporting companies. Review your work to ensure accuracy. File a dispute with the credit reporting agency on their website or by phone if you see anything that doesn’t look right.
No harm will come to your credit rating from checking your report sometimes. Unfortunately, many people who have never used a credit card before believe this fallacy.
9-Keep a watch on your credit ratings for any warning indications:
Indicative of the health of your credit reports, as credit scores are derived from data contained therein. Changes in the 5- to 10-point range are typically considered acceptable, and may even be to be expected, when establishing credit for the first time. Your credit score adapts to the ups and downs of your credit balances and utilisation ratio.
However, if there is a significant shift in your credit score, what should you do? A major change has recently been made to your credit reports.
A credit score shift is to be expected if you have recently applied for a new credit card or loan, or if you have terminated an existing account. However, if you haven’t made any adjustments to your finances that could have affected your reports and your credit score suddenly changes — review your reports. At once.
Tracking your credit reports and scores is a breeze these days. To monitor one’s credit score, a new credit card is the easiest option for first-time cardholders. Many credit card companies now provide free credit score monitoring and warnings, and tracking is standard.
10- Be bold and ask for assistance when you need it:
Many people who are using credit cards for the first time make the mistake of keeping quiet when they run into difficulty. Don’t take the fine print and other terms and conditions in credit card agreements at face value. Call your credit card company and explain the situation if you know you won’t be able to make your payment.
For both you and the card’s issuer’s sakes, it’s in your best advantage to settle your credit card balance. The best course of action is to contact the issuer well in advance of falling behind, as they may be willing to negotiate a payment plan or extension that would allow you to avoid late fees and interest. Communicating with the card provider beforehand can save you from incurring late fees and other credit-damaging consequences.
Swipe gently, not firmly:
First-time credit card users may find it difficult to learn the ins and outs of credit, but it’s far from impossible. You can go from a credit novice to a credit card expert with a little bit of education, and you’ll be well on your way to living a life of good credit.
Always keep in mind that establishing credit takes time. It can take years to establish a credit history deserving of a good credit score, so you won’t have excellent credit immediately. However, it may be worthwhile when you eventually benefit from speedy approvals and inexpensive interest rates on credit cards and loans.