When most people start out in the world of personal money management, they will use a debit card to help them out. However, at one point it might be a good idea to also apply for and start using a credit card. Are you ready to take this step?? Let’s look at some of the things you should think about to determine whether or not you are ready.
What is the Difference Between Cards?
Aren’t debit and credit cards the same thing? No, not in the slightest. Though they are both cards, the way that they handle money is very different. You have to understand this difference so you can then use each card appropriately.
A debit card is linked to your bank account, so you can only spend the money that you have. If you do not have the available money to complete the transaction, you will go into your overdraft if you have one, or the transaction will simply fail. You can also use a debit card to withdraw cash from your bank account directly, again if you have the funds to do so. It is one of the first financial products many will get, simply because it teaches you how to manage the money that you already have.
A credit card does not work the same way. With a credit card, you will build up credit as you use it. This means that you are essentially creating a bill for yourself that you need to pay off each month. When you use the card, no money is taken from your account until you decide to pay off the credit card bill. If you do not pay off the bill, the charges will carry over to the next month and you will receive some extra fees, adding to the amount that you owe.
What Charges Come with a Credit Card?
If you decide that you do want to get a credit card, you need to be aware of some of the charges that come with it, so you don’t end up caught out when they are due. The big one is obviously the interest that can be charged if you don’t pay off your bill each month. This needs to be dealt with quickly, otherwise you can find yourself building up a larger and larger credit card bill that you simply can’t pay off. This is a primary example of how people can get into trouble when spending with their credit card, and so you need to make sure that you are in a position where you can avoid such a charge.
However, it is not the only type of charge that a credit card user can face. Another that you need to watch for is the minimum interest charge. This comes into play if you only pay off a portion of your outstanding credit card bill. Understanding the minimum interest charge and how it can differ from the other charges that you could face as a credit card holder is incredibly important.
How are You as a Spender?
You need to think about your spending habits and how they might be affected if you had access to a credit card. If you already have poor spending habits and you only have a debit card, things might get worse if you have a credit card. Some people think that the credit card allows them to buy things as they please, and they ignore that growing credit card bill and think that they are fine because their bank balance is ultimately staying the same.
If you are one for making lots of little transactions without really knowing how much you are spending in total, this could be another indication that you are not ready for a credit card. You need to know how much you spend and where you are spending it. If you have got some unhealthy spending habits, either take steps to try to change them or make sure that they do not carry over to your credit card usage – though you should probably aim for the former path, not the latter.
Do You Have a Good Credit Score?
You need to think about your credit score if you are going to be making a credit card application. Though you might have taken steps to improve your spending overall, you might not have the best credit score. This means that most credit card companies might be hesitant to give you a loan because they think that you are not a trustworthy spender.
How do you rack up a credit score without a credit card? Any time you have to pay anything on finance, it can affect your credit score. The most common scenario that most will face is having to pay off a phone or a car. If you are locked into a contract to pay a certain amount each month towards these items, you need to make sure that you are making your payments, otherwise you will soon find yourself with a poor credit score.
If you do discover that you have a bad credit score, you need to take steps to improve it as quickly as you can. It is very hard to do things with a bad credit score, and one of those is to obviously apply for a credit card. Watch out – multiple rejected credit card applications can actually damage your credit score further and make things even more difficult to manage!
Are you ready for a credit card? This is something that only you will be able to answer. You need to make sure that you are a good spender with a proven history of responsible spending. Millions of people all over the world safely use their credit card, but there is a minority that gets into trouble when doing so, you need to make sure that you are prepared for some of the challenges that come with owning one. Take the time to ensure that you are in the best position for your credit card application before you make your first.