I was frightened to own a credit card before because I’ve heard a lot of things saying that having a credit card can put you into too much trouble when it comes to your finances. Not to mention the fact that it is not always easy to get one, especially if it’s your first time and you are only starting to build your credit score. But in these days when everything you need is almost online, owning a credit card has become a necessity. Flight bookings, ITunes, Netflix subscription, online shopping, online membership, etc. require credit card for payment and if you do not have one, then you must look for other alternatives. But before owning a credit card you must first know some few things: Why own a credit card? When to own one? How to use it? If you do know the answers to these questions, then yes, maybe you need one.
Why Own a Credit Card?
Some will argue that owning a credit card is like putting oneself into the pit of debt and once you succumb to temptation there will be no way out of it. Though, it may be true that a lot of debts nowadays were from credit card debts, it is important to point out that these debts were actually made when one person doesn’t properly manage his/her finances. The use of credit card comes with responsibility, and if one develop a good habit of managing his/her finances, the use of credit card can prove to be beneficial and rewarding.
- Convenience. Using credit card eliminates the hassle of bringing cash anywhere. If you run out of gas and cash and the nearest ATM is kilometer away, having a credit card can solve the problem, with just a swipe of the card you are okay to go.
- Security. Compare to debit card and cash, losing a credit card can be more secured. Basically that wasn’t your money and if proven that the transactions made after you report the card missing are fraud, then you wouldn’t be liable for those. Once lost, just simply call your card provider and report the missing card and the card will automatically be cancelled to prevent further transactions.
- Rewards. Most of the banks provide sign-up bonuses or gift certificates or any kind of rewards that you can use. For every spending you can get rebates, you can earn points that could eventually translate to free purchases and some can earn miles which means you can get free flights to anywhere you want to go.
- Online transactions. In this age of modern technology when almost all transactions can be made online, having a credit card is a essential. Yes, you can still purchase for example flight tickets from travel agency, but would you rather pay higher amount if purchased from a travel agency than doing it by yourself online without agency fees?
- For emergency purposes. We are not only talking about, having no ATM in close proximity or no money exchange counter on the area, here, but also about general instances where in you don’t have enough money to buy for something necessary.
When to Own a Credit Card?
Now that you know the importance and advantages of owning a credit card, you must then ask yourself when you have to own a credit card? It is not just about simply when are you going to the bank to apply for one or at what age can someone own a credit card, it is more about knowing if you are ready to own a credit card.
- When you know all the terms you need to know about credit card. It is important to know the important terms used when we talk about credit card or finance because these terms will show up on your monthly billing statement to better understand the intricacies of owning one. Some of the terms you need to know are:
- Finance charges: the amounts billed when one does not pay the monthly credit card balance in full.
- Minimum monthly payment: the lowest amount one is required to pay on a given statement month.
- Over-limit fee: the fee that is charged if one goes over the credit limit. Some transactions may still be allowed to go through even if it’s more than the credit limit but this fee will be charged.
- Late Payment fee: fee that is charged if one fails to pay at least the minimum monthly payment required on that given cycle.
- Due date: when the monthly billing statement need to be settle whether with a minimum monthly payment or full payment.
- Billing cycle: it is the exact, recurring time period between billing statements.
- Fraudulent transactions: transactions not authorized by the credit card holder.
- When you are capable to pay your monthly bill. Though before owning a card, the card provider needs to do a background check on every application to check whether one is capable of paying, it is still your responsibility to know whether having a credit card can be a burden to you, especially if you are known to live beyond your means.
- When you are aware that good payment and good management of the card can translate to a good credit score. A good credit score could translate to a better loan options in the future.
How to Own a Credit Card?
After knowing the importance of having a credit and you decided to own one, you must know how to properly use it. A proper management of debts can result to a good credit score while a failure in managing your finances can result to an overwhelming debt that can lead to a bad credit rating.
- Use only when needed. Having a credit card doesn’t mean unlimited shopping. You must only use it when it is really necessary and if you know that you can pay it back.
- Always pay in full. Upon opening of the account, you are given grace period of at least 50 days to not incur any finance charges, but when the first billing statement arrives, if you want to maintain a no-interest charged on you, it is important to make the payment in full. Making the minimum is okay to prevent being charged with late payment fee but that will not stop finance charges in showing up on your billing statement.
- Do not ever make a cash advance. Unlike normal transactions, making a cash advance can automatically incur a finance charge, not to mention the transaction fee that you need to pay. Meaning, even if you pay it in full before the due-date you can still see finance charge charged on your account.
- Know your credit limit and due-date. To prevent paying extra fees, you must be aware of your credit limit so you will not go over and also, you must know when is your due-date so you can make the payment before its due.
- Ask for a one-time fee to be waived. Okay, given that sometimes you cannot track your transactions and go over the limit or you are very busy and forget about the due date, you can request to have the fees charged on your account be waived. This is possible especially if you have a very good record. Just call them, request and have it removed.
- Choose your rewards. I already mentioned this, but it deserves to be reiterated because it is true, knowing how to properly manage your finances can prove to be beneficial. If you love traveling, choose a card that can earn miles for free flights, or if you are a homebody person, choose the one wherein you can get rebates and points converted to gift certificates.
- Monitor your transactions always. Monitoring your transactions regularly is not only about preventing to go over the limit but also to check whether there are fraudulent transactions on the account.
- Close inactive accounts. If you opt to use your debit card instead of your credit card, make sure to close the account to prevent any annual membership fee (if ever you have) from posting into your account in which you might need to pay.
- Maintain a single card/account. There is no need to have multiple cards from different banks, because that would only makes you confuse and that could result to improper handling of all these accounts.
Whatever I write or whatever you read, the only person who can tell whether you need to own a credit card and maintain it, is yourself. You would know its benefits and uses, but if you don’t know your capabilities in handling your finances and you don’t know your responsibilities, then, all of these are futile. It is never better to have one and not knowing how to use it properly than to not having it because you know you cannot handle it.