Storify News | In this digital age, a credit card has become one of the most important financial tools. Right from purchasing groceries to booking flight tickets, credit cards are widely used and accepted. It has become a preferred mode of payment, for many, owing to the convenience it provides.
A credit card can be a lot more useful if used responsibly and in the right way. It can help you build a positive credit history, which can further assist you to obtain loans at favourable interest rates and avail cheaper insurance.
If you are thinking of getting your credit card, you may have a few questions. After all, your first credit card will introduce you to the world of finance and credit and enable you to reap its benefits.
Before you apply for a credit card, it is essential to know how to make the best use of it. So, here are a few vital points about credit cards.
Why should you get a credit card?
Credit cards come with multiple benefits, some of which are listed below:
- Credit cards allow you to pay for immediate expenses and emergencies without having to borrow money from outside or withdraw cash from an ATM.
- Credit cards offer rewards, cash backs and incentives, which can be further used for shopping or travel benefits.
- If you use a credit card wisely, it can help you build your credit score, which in turn can help you obtain future loan at negotiable interest rates, and also get lower insurance premiums.
- Many credit card companies provide you insurance on travel such as flight or bus tickets along with the credit card.
How credit cards affect your credit score?
Your credit score is determined by how well you manage your debts and balance your spendings. Credit cards can have a massive impact on your credit score. Therefore, you must use it with great responsibility.
Your credit mix, repayment history, the amount of debt you carry, etc. influence your credit score in various percentages. Moreover, late payments, nonpayment and closing your credit card account can have a negative impact on your credit score.
How does a grace period work?
A grace period is a time during which you are not charged any interest on your purchases provided you pay off the entire balance before the due date. A grace period begins from the end of a billing cycle and continues till the next payment due date. If you fail to pay your balance either wholly or partly during the grace period by the due date, you are liable for interest on your average daily balance.
What are the different fees on the credit card?
There are various fees that credit card issuers charge before issuing a credit card to you. Some of which are:
- Joining fee: It is the fee you pay to the issuer to obtain the credit card. Nowadays, many card issuers have exempted this fee, which means you can receive a credit card without paying a joining fee and associated charges.
- Annual fee: This is the charge you pay to maintain your credit card. As the name suggests, the annual fee is paid every year to renew the card. Just like a joining fee, many credit card issuers do not charge this fee as a part of their offering.
- Interest rate: This is the amount you have to pay to use the card. Issuers mainly earn from interest charges on credit cards. It varies from issuer to issuer and can be anywhere between 1 to 3 per cent.
How to choose the perfect card for you?
The choice of credit cards available in the market is enormous and choosing the best credit card that fits your requirements can be a tough task. Various banks and other financial institutions offer credit cards. To find a suitable card, you must analyse your spending habits to know your major expenditures. It can help you earn discounts, cashbacks, rewards, etc. on your spends. So for example, if you travel a good deal, opt for a travel credit card, which can help you earn points on booking flight tickets, air miles, hotel discounts, etc. Likewise, if you are a shopaholic, go for a card with an excellent reward programme to earn rewards on your purchases.
Remember you might be denied a credit card
It is good to know beforehand that not everyone qualifies for a credit card. Issuers access your creditworthiness before issuing you a credit card. If they do not find enough proof that you are trustworthy for a loan, they may not want to take a risk on you. There are chances your application might be rejected due to poor or lack of credit history, excessive borrowing, lack of fixed income source, etc.
Treat it as if you are applying for a loan
A credit card is like a readily available loan, which allows you to borrow as long as you pay it back. You can use a credit card to buy everything right from groceries to movie tickets, fuel, flight tickets, etc. It is a meaningful financial tool if used responsibly. Remember you have to repay the amount you spend on a credit card within the due date to avoid penalties. In fact, not paying your credit card bills can have a negative impact on your credit score and could drastically reduce your chances of getting a loan or credit card in the future.
These are a few basic things you must be aware before you apply for credit card. It is better to be well-informed before you use any financial tool.
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