How to Apply for Credit Cards
If you want to apply for credit card, it is not a thing you can rush into. Otherwise, you may make some mistakes that can hurt your credit score at the end. So, it makes sense for one to educate himself on dos and don’ts involved in credit cards application before starting the process. This article is going to be a long one. It is not just to discuss about the credit cards application process. Though it may not cover everything you need to know about credit cards, you will get some useful information before you get to the end of the of the article.
What is credit card?
Credit card may not be a new thing to people in the Western or European countries. But to some countries in the African region, credit card is still relatively new if existing at all. What is common in African countries are ATM Cards or Debit Cards. Even in the Western or European countries, it is possible for some categories of people not to fully understand what credit cards means especially young adults that are just crossing the age of eighteen years of old. They may just be applying for credit cards for the first time. So, it is not out of point for me to start this article by explaining what credit card means.
If you are familiar with ATM Card or Debit Card, you will not have difficulty in understanding how credit card function. Credit card is also a plastic card like that of debit card. The difference is that, while you need to pre-fund your account before you can use either ATM card or debit card, you don’t need to fund your credit card before you can use it to make purchase or payment. Each time you use credit card, you are simply borrowing money from your financial institution based on the approved limit set for you. Does it sound complicated? I will explain in a simpler form. If you want credit card, you need to approach card issuer to obtain application. Your application will be reviewed along with your credit history and credit score. If your application is approved, you will be given a line of credit to a particular limit. Then, a credit card will be issued to you through which you will be able to access this line of credit. You may not be able to spend beyond the credit limit set for you. Otherwise, you will be charged a fee for exceeding your credit limit. Nevertheless, any transaction that will make you exceed your credit limit may be declined by your card issuer. You can use the credit card the same way you will use your debit card. The only difference here is that, you spend your own money when you use a debit card to buy or make payment. However, in the case of credit card, you are borrowing money from your card issuer and you are expected to pay the money back either in full or by making the minimum payment before the end of the month or billing cycle. If you carry balance in your card beyond your billing cycle, you will be charged an interest. The interest will depend on the amount involved and the applicable interest rate. There are different types of credit cards in the market with varying fees and charges. Having the understanding of your needs will help you choose the credit cards that will be right for you. I need to mention that you may only apply for credit card if you meet the basic credit card requirements.
Credit Card Requirements
What are the credit card requirements? Credit card requirements are those conditions you need to meet before your application for credit card can be approved. The credit card requirements may vary from one country to another. Notwithstanding, the following can be considered as general credit card requirements:
- You should be at least 21 years of age: Credit cards are for adults and not for minor. If you desire to apply for credit card, you need to wait till you attain the age of twenty one years of age. Notwithstanding, if you are eighteen years old, you can apply for credit card with the permission of your parents. Your parent will need to co-sign your application. Alternatively, if you can prove that you earn enough income that will enable you to make minimum monthly payment on the card, your credit card application may be considered. It doesn’t matter whether somebody is ready to co-sign for you or you have of a proof of sufficient income, you can’t apply for credit card if you are below eighteen years of age.
- You should have a regular source of income: This apply to everybody that wants to apply for credit card after you must have met the minimum age requirement. If you don’t have a job or business that provides you a regular income, your application will be disapproved if you apply for credit card. Don’t forget that you will be borrowing from the card company. Therefore, you are expected to show them that you have a reliable source of income and how you intend to pay back the balance that may be standing in your credit card. If you are a student with a limited income level, you may apply for student credit card.
- Evidence of regular payment of bills: You should be able to demonstrate to the credit card issuer that you pay your bills regularly. If you have not been paying your bills regularly, it can be a signal that you will not pay your credit card balance at the end of the billing cycle.
- You should be a permanent resident of the country. Cards companies will require that you are permanent resident in a country where you want to apply for credit card. One of the essential credit card application requirements is that you should have Social Security Number and proper means of identification such as Driver’s licence or any State-issued Identity card.
- Positive credit history: Before you apply for credit card, you should ensure that your have a good credit history. Without a good credit history, you may not be issued credit card. Not having credit history may not necessarily means that you a bad customer. But no matter how disciplined you are in financial matters, you may not be able to prove this to credit card companies if you don’t have credit history. And this will definitely affect your credit score. When it comes to credit card requirements, your credit score will determine whether your application will be considered or not. Even when the application is considered, your credit score will still determine the credit limit that will be granted to you. In case you can’t meet these credit cards requirements, all hope is not lost. For people with no credit history, starting with secured credit card may be a good option. What is secured credit card? A secured credit card is the type of credit card that will be issued to you if you will need to guarantee the payment of your card balance with a funded account with the institution. With this, you will be able to build your credit history over time as you continue to use the card and ensure that you pay your balance as at when due. It works almost like debit card. The difference is that transactions on debit cards are not reported to the credit bureaus while that of secured credit cards are reported. If you use your secured credit card responsibly, your card issuer may convert it to full-fledged credit card after one year. At times, credit card companies may play down on the weight attached to credit history as part of the credit card requirements. In this regard, they may issue you a credit card at higher fee and interest rates.
Types of Credit Card Fees
Before you start applying for multiple credit cards, it is very important that you consider the cost implications of such decision. Of course, it feels good to have cards that are good for a particular situation whether for international travelling or your local purchases. Although it is true that money is not everything, when it comes to credit cards, it makes sense to consider the financial implication of whatever decision you want to make. Any decision you make will either improve or hurt your credit score. If the benefits you will get in holding a particular credit card do not outweigh the costs you will incur, I would rather say that it may not be worthwhile. Below are the likely fees you may pay on your credit card but note that all may not apply to you at the same time.
- Application/processing fee: When you apply for credit card, the first fee that you may likely be charged is the application or procession fee. What does this fee cover? It covers the costs involved in getting your credit information in order to determine your suitability to hold a card or to determine the credit limit that will be granted you. As a result of the competitiveness in the credit cards market, some card providers may decide not to charge application or processing fee. Nevertheless, you need to understand that they are in the business to make money. Therefore, you may need to consider other costs before you jump into accepting any card offer. Not charging application or processing fee can actually be a bait.
- Annual fee: Some card providers call it annual maintenance fee. This is the money you will need to be paying annually as long as you hold a card. It does not matter whether you have any balance on the card or not. In most cases, this amount is fixed. If your level of transaction does not justify the need for a credit card, you can actually do without the card. Imagine if you have five different cards charging you annual fee of $30 each. That means you need to pay $150 annually for holding the cards. If the money you are trying to save is not up to this amount, then there may not be justification for holding multiple cards.
- Transfer fee: The possibility that a cardholder may consider moving his balance from his existing card into another card may not be ruled out. In many cases, people tend to move their balance from high interest card into a card that can help them enjoy low interest or fee. The amount you need to pay in order to have your balance transferred into another credit card is being referred to as transfer fee. In order to ensure that you are having a fair deal, you can pick your calculator to compute what your transfer fee will be if you should move your balance to another credit card. Transfer fee is usually expressed as a percentage of the balance you are transferring. If the transfer fee is less that the interest you would have paid on the loan, then you are having a good deal. However, that will only be a good deal if you are able to pay off your balance within the 0% APR period. Transferring your balance into another card is like telling the new card issuer that you have learnt how to discipline yourself about your credit. That is, you are saying that you will be able to liquidate your balance within 0% APR period. However, if you default in your monthly payment or you are not able to pay off your balance within this period, you should be prepared to pay interest rate which may be higher than the rates you are paying in your existing card.
- Cash advance fee: It is expected that you should only use your credit card to make purchase. In a situation where you use your card to make withdrawal, such amount withdrawn will be considered as cash advance to you. You will be charged a fee for the amount withdrawn and the fee is called cash advance fee. Besides the cash advance fee you have to pay on the cash withdrawn which may be a fixed amount or a certain percentage of the amount withdrawn, you still need to pay interest on the same amount. You should not be surprised that the interest you will pay on the cash withdrawn through your credit card may be far higher than what is obtainable on normal purchases. If you know you will not be able to pay off the cash advance before the month end, it may be better to consider applying for personal loan. Personal loan will allow you to make repayment over a specified period of time. Please note that you cannot withdraw cash from your credit card beyond your approved credit limit. Also, whatever grace period you enjoy will not apply to cash advance. You need to pay your cash advance in full before the due date; otherwise, it will start accruing finance charge. See below for explanation on finance charge
- Finance charge: Finance charge works almost the same way banks will charge interest on your outstanding loan balance. When you carry any balance on your credit card beyond your grace period, your card issuer will charge you interest. The amount of interest will depend on the balance on the card, the APR and the length of your billing cycle. The finance charge will be included in your statement. If you know how to calculate finance charge, you can confirm the correctness of the amount in your statement. This is to ensure that the amount is accurate. If you discover any excess charge in the statement, you can quickly seek for the correction. The good news about finance charge is that it is avoidable. You only pay finance charge when you carry balance on your credit with the exception of cash advance. Therefore, if you want to avoid finance charge, I will suggest that you should avoid cash advance and you should not carry balance on your credit card beyond your grace period.
- Foreign transaction fee: One of the benefits of carrying credit card is the opportunity to transact in another county without necessarily holding physical cash. However, with this benefit comes the foreign transaction fee. You may be wondering why you should be charged for transactions in foreign countries. Well, you need to understand that you are buying in a foreign currency. Before you can convert one currency into another, certain costs will be incurred by the card issuer. What card issuers do is to pass the costs to their customers. Nevertheless, some of them may choose to bear the cost themselves. You need to find out the position of your card issuer on this and how much they charge. This will help you ensure that you don’t overrun your credit limit. That means you need to put into consideration both the cost of the item you want to buy and the foreign transaction fee thereon.
- Late payment fee: The use of credit card requires financial discipline. It is not enough that you pay the balance on your credit card, you need to pay as at when due. In order to avoid late payment fee, you should avoid making late payments. This demands that you are conversant with your billing cycle. This can vary from one card issuer to another. If you hold multiple cards, you need to monitor the billing cycle of each card; otherwise you will find yourself always in default of your payments. Also, while making payments especially on weekends, you should make provision for processing time. It is not the date that you make payment that counts but the date the payment clears in the account. The problem with late payment is not just about the fee you will pay; it can also affect your credit score. Indirectly, this can cost you high interest rate and insurance rates.
- Over the limit fee. Every credit card holder has a specific credit limit. If you exceed your credit limit, you may be surcharged “over the limit fee”. In an attempt to protect consumers, the Credit Card Act forbids credit card issuers automatic enrolment of credit card holders into over the limit scheme. With this, before any person can exceed his credit limit, he has to opt in for it. That means that consumer’s transactions may be declined if this will push a customer to exceed his credit limit except he specifically allows that the transaction should be processed. Instead of overshooting your credit limit, you may apply that your credit limit be reviewed upward. Those people with good credit score usually enjoy high credit limit while people with low credit score or no credit history may only be granted low credit limit. Nevertheless, if you are prompt in making your payments on a regular basis, you can be considered for higher credit limit. Alternatively, you can apply for another credit card so that you can make purchase from the second card any time you want to make a transaction that can make you exceed your credit limit on the first credit card. If you subscribe to transactions and balance alerts, this can help you avoid transactions that can cause you to go beyond your credit limit thereby avoiding the credit limit fee.
- Returned payment fee: How do you pay the balance in your card? If you pay with cheque and the cheque bounces, you will be surcharged returned payment fee. To avoid returned payment fee is very simple. Don’t issue a cheque for the payment of your balance when you know you don’t have sufficient fund in your account.
- Statement fee: Every month, you will receive a statement of your account showing the details of your transactions within the period usually a month, your account balance and the minimum amount you need to pay and the date such payment is due. In the statement, you may also notice some fees such as interest, foreign transaction fee etc. It is a good practice to ensure that you check all the transactions in the statement. If there is any transaction you don’t understand, this may require explanation from your card issuer. Your card issuer may charge you statement fee especially if you are getting paper or re-print copy of your statement. Some card issuers may send online statement free or at a discount. This depends on their terms and agreement. If you want to avoid or reduce statement fee, opting for online or e-statement may a right step to take.
Categories of Credit Cards
There are different categories of credit cards. Each of them is designed to meet a particular need of group of people. Below are some of the popular credit cards and their features:
- 0% balance transfer credit cards: This category of credit cards allows cardholders to transfer their balance from their existing credit card to another card without paying interest if they pay up the card balance within a specified period. When you transfer your balance to a new credit card, the implication is that the new card issuer is simply helping you pay off your balance on the old card. At transfer, you will no longer owe the old card issuer. Instead your balance will be transferred to the new credit card at a fee called transfer fee. Credit card transfer fee is usually in the range of 3% of the amount being transferred. There are many 0% balance transfer credit cards in the market with different 0% interest duration. Why 0% balance transfer credit cards? Or let me put it in another way. Why should you shop for 0% balance transfer credit cards? 0% balance transfer credit cards are actually good for people having balance on high interest credit card. In order to minimize the interest or the fee payable on such balance, people usually apply for 0% balance transfer credit card. However, one can only maximize the benefits of 0% balance transfer credit cards if the balance is paid off before the expiration of the 0% interest period. You are expected to make at least a minimum payment each month. If you don’t pay up your balance within this period, you may be hit with high interest rate which may be higher than the rate on the card where you transfer your balance from. In this regard, it may be another time for you to shop around again for 0% balance transfer credit cards. Before you transfer your balance into another card, you should compare the transfer fee you may need to pay with the interest amount you are trying to save. If the transfer fee is not too high, such move will not only save you the interest cost, you will have more ample time to pay your card balance. Nevertheless, you should understand that 0% balance transfer credit cards may not be open to all sundries. You need to have a good credit history and high credit score before you can be considered for this type of credit card. Even, if you are qualified for the card, you may be required to make the transfer within a specific number of days. Any balance transferred after the date will attract interest. Alternatively, if your credit score is fair, you can still be granted 0% balance transfer credit card but with a shorter 0% duration. Please note that you may not be allowed to transfer your balance to another credit card if the two card companies happen to be in the same group.
- Low fee Balance Transfer Credit Cards: For people with high card balance, transferring their debt may mean that they need to pay high transfer fee. In order to avoid such high fee, low fee balance transfer card may be a good option. With the level of competition in the card market, we now have card companies offering 0% balance transfer, Nonetheless, the interest rates on such cards tend to be high.
- 0% purchase credit cards: If you are cash pressed and you need to make large purchase which you don’t have immediate cash to pay for now, 0% purchase credit cards might save you few bucks on fee. It may be that you are preparing for your wedding which may require you to buy many things within a short period. On the other hands, holiday periods or when approaching Christmas period can be a good time to apply for 0% purchase credit cards. With this type of credit cards, you will be able to spread your payment without paying fee within the introductory period. The introductory offer period can last for six or twelve months but you should understand that this period will start counting immediately the card is issued whether you use it or not. Just like other credit cards, 0% purchase credit cards usually come with certain terms and conditions. For example, to qualify for 0% purchase, you might be required to make purchase up to certain amount within a specific period. So, if you are not a heavy spender, it may not make any difference applying for this kind of card. On the other hand, 0% purchase credit cards can be a trap in disguise to lure you into making purchase you will not be able to pay for. If you fail to pay off your debt within the introductory offer period, you should prepare to pay high interest rate. If you miss payment too, you may be charged a penalty which may be hefty for you. Nevertheless, if you have unpaid balance in your 0% purchase credit cards at the end of the introductory offer and you have a good credit score, you can decide to move your debt to 0% balance transfer cards. With this, you will be able to avoid the hefty interest payment. One limitation about is that, some card companies may require that you are resident in a particular state or location.
- Reward credit cards: Some credit card companies reward you for using their credit cards to make purchase. This sounds juicy! Well, it is true. Personally, I believe there is no free lunch anywhere. But before I go into the details, let me quickly explain some types of rewards you can expect from reward credit cards. Your card company can reward you in form of cash back, points reward, airline miles or hotel loyalty points. All these rewards are quite good. But before you rush to sign up for any reward credit card, it is important that you first assess your needs and see if the rewards being offered can actually benefit you. One thing about reward credit cards is that, they usually come with higher APR and annual fees. So, you will not be doing yourself any good if you are not getting the benefits. Also, if in an attempt to ensure you enjoy the benefits and you now overshoot your spending to the level that you can’t easily repay, you may be digging debt grave for yourself. So, let me explain the credit card rewards mentioned.
- Cash back reward: In this type of reward, your card company pays you certain amount for using their card to make purchase. This may not actually be paid to you as cash. What the company will do is to credit your card thereby making the money available for you for purchase. Before you qualify for cash back reward, you must have spent a specified amount within a stated period of time. For example, the card company may require that you spend $5,000 within six months before you enjoy the cash back reward. The company might also require that you redeem the cash by making purchase from specific supermarkets. So, the guiding principle here is that, before you sign up for cash back reward card, you should ensure that your spending habits fall within the stated benchmark. You should not over-stretch your spending just because of cash back rewards.
- Point rewards: Points reward cards operate slightly different from cash back cards. In case of the latter, what the card companies do is to give you points. That is, you will earn point for every dollar you spend using their card. These points can be accumulated and converted to either cash or gift cards. The gift card may be specific to a particular supermarket, meaning that you will only be able to redeem the card from the supermarket.
- Airline miles: For people that travel often, airline miles reward may be a good way to earn rewards from your card company. In fact, there are airlines credit cards in the market. Some of them will even come with sign up bonus. However, in order build on the sign up bonus, you will need to spend a specific amount within a specified period. Just like the points rewards, your reward is translated into mileage. With your airline miles rewards, you will be entitled to discount on your airline ticket or a free trip depending on how much rewards you have earned. Besides, some card companies will allow you to make purchase with your rewards while on holiday trip. Another benefit you can enjoy is “no foreign transaction fee”.
- Hotel loyalty points: Some top hotels have partners with credit card companies. Each time to lodge in the hotel; you earn points on your spending. In order to qualify for hotel loyalty points, you may need to make it a habit of staying in a particular hotel instead of changing hotels each time you travel. Hotel loyalty points can earn you free meal or free accommodation in the hotel. This type of reward is actually good for business persons or executives that travel often.
One thing is common to all reward credit cards. You need to have very good credit score before you can be considered for any of the reward credit cards. Also, rewards do expire. If you don’t reward your rewards within a specific period of time, you might lose the rewards.
- Student credit cards: As a student, you may not have access to standard credit cards because of no credit history. Credit history is a major factor credit card companies usually consider before granting approval to issue card to any customer. So, if you are a student and you desire a credit card, you can apply for student credit card. Student credit cards are specifically for students who may not have credit history which may allow them to be issued a standard credit card. With student credit card, you can start building your credit history by ensuring that you use your card responsibly. You are encouraged to max out your credit limit. Maxing out your credit card can hurt the credit score you are trying to build. Ensure that you pay your debt on time on a monthly basis. Most credit card companies will require that you have an active college or university email address. You need to note that that you will be charged higher interest rate. If you want to avoid high interest rate as a student, you can request your parent to co-sign a credit card with you with little credit limit.
- Bad credit credit cards: Here I need to be sincere that it is not easy for people with bad credit to secure a credit card. A lot of people run into this trouble just by mistake. They probably took some steps that took toll on their credit scores. For instance, some people think that they can max out their credit limit as long as they pay back their debts. Credit rating bureaus will not see it that way. They will see it as a sign of financial tension. And this will affect your credit score. Possibly your credit is bad and you are shopping around for credit cards; you must have faced a lot of rejections. This is because you are approaching the situation in a wrong way. The more you apply for credit cards and are turned down; the more harm you are doing to your credit. This is not the time to pretend about the situation. Your credit is bad and you need to admit that. That is not the end of the world. There are bad credit credit cards which are targeted at people with bad credit. If you apply for this type of credit card, the card companies are already aware that your credit is bad. So, they don’t expect high credit score from you. The only thing with bad credit credit cards is that they attract high interest rates. Well, this is the price you need to pay for your bad credit. Once you get your credit card, you should learn from your past mistakes. Ensure you use your card responsibly. Don’t max out your credit. Pay your debt consistently without any delay. With time, you will begin to see improvement in your credit.
- Credit builder credit cards: There are different types of credit cards. There is no way you won’t find one that will suit your situation. You may say that you don’t have bad credit but still you are unable to get approval for a card, it may be a time to consider a credit builder credit card. Credit builder credit cards are designed for people with not too good credit or for people applying for credit card for the first time. If you are applying for a card for the first time, there is no way you can have credit history. Credit builder credit cards will help you start on a clean slate and you can begin to build your credit. As a starter, you need to avoid such things that can hurt your credit score. Such things include maxing out your credit, late payment or default in paying your debt, applying for too many cards the same time etc. For people with not too good credit, you have another opportunity to prove that you can handle your finance responsibly. Therefore, don’t repeat what you did in the first instance. Experience is the best teacher. Therefore, learn from your mistakes.
- Travel credit cards or overseas spending credit cards: I have mentioned this before. This card is meant for people that travel often. In most cases, it comes with rewards such as airline miles. However, the reward is not automatic. It has to be earned. Also, as a result of the need to make purchase while on trip, travel credit cards can come with no foreign transactions fee as part of the package. If you don’t travel often, this package will not be suitable for you no matter how attractive it may be.
- Secured credit cards: Another option for people with bad credit or no credit history to get credit card is to apply for secured credit card. If you apply for secured credit card, there is possibility that your application will be granted as the card company will require that you make a deposit. This deposit will serve as collateral in case you default in payments. Secured credit cards operate as normal credit cards as your transactions will be reported to the credit bureaus. The credit limit on your card will be the amount of deposit you make. This amount can be refunded to you after one year or when the card company is convinced of your credit worthiness. Your credit limit can be increased by the card issuer if you make payments consistently over a period of time. You can also increase your credit limit by making additional deposit. Despite the deposit, the interest rate on secured credit cards is still higher than that of standard cards. Since your main objective is to build your credit, you may not need to pay any interest as long as you pay off your balance every month. Therefore, the high interest rate you not be a concern to you. Nevertheless, you still need to pay annual fee on your card. If you don’t make additional deposit, this will be removed from your deposit. Other charges may still apply. For example, if you use your card to withdraw money or you make a foreign purchase.
- Premium Credit cards: Premium credit cards are for top class people who like enjoying best of life. Of course, to this class of people, cost is not their concerns. They are more concerned with benefits. Among the benefits that usually come with premium credit cards include high credit limits, complimentary insurance, different rewards and options to redeem them, concierge services and other exclusive deals. With all these benefits, you should expect that the costs attached to be high. The costs are actually high but the benefits usually outweigh the costs. Whether the benefits are actually redeemed is a different issue.
Read Also: How to Cut Down Your Student Loans
Benefits of multiple cards
With all these different types of credit cards, the next question one may ask is, “can I have multiple credit cards?” Well, the answer can be ‘yes’ or ‘no’. You need to assess your situation and your need per time before deciding to hold multiple cards. While I am not saying that you should carry multiple cards as I don’t know your peculiarity, I will briefly highlight some of the benefits of multiple cards.
- Different features and benefits: Having read the different types of cards above, you must have noticed that they have different features and benefits. Therefore, holding two different credit cards entitles you to the features and benefits of the two cards. So, you can use the card that relates to the transactions you wish to perform per time. For example, if you hold card with no foreign transactions fee, you can use this card any time you travel into another country without paying additional fee on your purchases.
- Higher credit limit: Each card has a specific credit limits attached to it, This means you cannot spend beyond the limit without incurring over the limit fee. But if you have a second card, you can easily use it for purchase any time you notice that you are about maxing out your card.
- Low utilization ratio: Utilization ratio on your card actually affects your credit rating. If your utilization ratio is quite high, it is an indication that you may be facing some financial pressure. Instead of having a utilization ratio of over 90% on one card, you can spread the ratio into say like 40% and 50% on two cards of the same credit limits. This makes your credit report to appear healthy.
- Back up: In case you lost any of your cards, the second one can serve as a backup for you. This will allow you to make purchases which may be very urgent before you have your card restored.
How to compare credit cards
Before you choose any card, you need to compare different credit cards. So, with all different types of credit cards that have flooded the market, how then can you compare them? It may actually be an herculean task comparing credit cards on your own. The good news is that, there are various credit cards review websites where you can read independent reviews of different categories of credit cards. The first thing you need to do is to define your objectives. If you know what you want to achieve, it becomes easier to compare credit cards that fall in the categories of your needs. Just as a guide, when you are comparing cards, you need to consider the type of cards and their introductory offers and other fees such as annual fee. Other things to consider include the billing cycles or the grace period, the rates of interest and how such rates are calculated. Find out information if the card companies have special offers. If they have, what are the expiry dates, terms and condition for such offers? Are there rewards attached to the card and how will the rewards be redeemed. What are the credit limits and the minimum payment you are required to pay per month? What are the penalties? By the time you weigh the benefits and the costs attached to each card, you will be able to choose the one that is most suitable for you. While comparing credit cards, you should not be carried away by the benefits or rewards advertised. If you take time to read the terms and conditions attached to them, you may discover that you will not be able to meet them thereby denying you of the benefits. With many types of credit cards in the market, you need to choose the one that align with your lifestyles and your spending patterns.
Why People Apply for Credit Cards
With all the credit cards application challenges, you will wonder why people are still applying for it. Whether you like or not, credit cards have come to stay as vital part of our economy. People apply for credit cards for different reasons. These reasons pulled together can be described as benefits of credit cards. And these are explained below:
- Building credit: You may think you don’t need a credit card especially if you are comfortable financially and you have enough cash to pay for whatever you want to buy. You have your debit card which you can use to make purchase at will. Hence, no need for apply for any credit card. This sounds good but the problem with debit card is that you cannot build your credit through it. If you want to build your credit, then you many need to consider applying for credit card. The truth is that, you need to build your credit ahead the time you will actually need it. Therefore, it is not enough to hold credit card. You need to use it on a regular basis and ensure that you pay off your balance before the end of your billing circle. Please note that holding a credit card can work against you if you don’t know how to manage your finances. You can only use it to build your credit if you use it responsibly.
- Convenience: In the past, you need to go the bank and queue up to withdraw money from the bank. Also, you need to visit the office of your utility providers either to make payments to them directly or to take the evidence your payment to them. With credit cards, you don’t need to leave the comfort of your home before you conclude transactions. The use of credit cards has actually made life easy for people.
- It saves time: Time is money for people who know how to use it judiciously. You can use the time you would have spent going out and get stuck in traffic jam to attend to things that can bring you money. Besides, if you know how to arrange your life, you will realise that credit cards will not only save you time. It also saves your costs especially transport related expenses.
- Immediate cash: Your credit card is as good as having cash in your pocket. You don’t need to carry cash about before you can make purchase. Whatever cash can do, credit card will do it. Even there are things your cash cannot do, that credit cards will help you achieve. For example, you cannot make online payment with cash but credit cards will do this. If you supply your credit information to your vendor, you can settle bills with ease without having the vendors chasing you around.
- Record Keeping: If you are lazy at record keeping, credit cards provide an avenue for you to be able to track all your expenses. At the end of every billing cycle, you normally receive a statement showing the details of your transactions and any applicable fee during the period. That means, you can actually see how you spent your money and which expenses take the chunk of your income. This can provide a basis for budgeting or review of your expenses.
- Low cost: Credit cards actually provide access to credit facility at a very reasonable cost. If you have a good score and use your card responsibly, you will discover that some costs associated with credit cards can be avoided. Credit card is actually a good source for emergency line of credit which you may not be able to secure from the bank.
- Purchase Protection: For people that like buying online, it is unlikely that you may pay for something and you later discover that the product is not satisfactory. This may lead to the return of such item and your request for refund. Card issuers provide protection for customers in this regards. With credit cards, the refund can be easily credited back into your card.
- Reward points: There are different types of credit cards out there. There are card companies that reward their customers for purchase made through their cards. Rewards can come in form of cash back, reward points, airline miles and others.
- International Purchase: Credit cards work in different currencies. That mean that you don’t need to bother yourself with how to convert your currency into another currency any time you travel and you want to make purchase in foreign currency. Credit cards do the automatic conversion for you. However, this may attract fee in some instances. Nevertheless, there are credit cards that are specifically designed for travellers so that they will not need to pay foreign transaction fee any time they use their cards in another country
- Debt consolidation: If you have different debts, you can easily consolidate the debts with the help of credit cards. You can decide to transfer your debts from high interest account to a low fee credit card.
Disadvantages of Credit Cards
Despite all the benefits you tend to enjoy when using credit cards, there are certain disadvantages which can be attributed to it. These are mentioned below.
- Annual fee: It is true that you enjoy convenience when you use a credit card. This comes at a cost in form of annual fee. It doesn’t matter whether you use the card or not, you need to pay this annual fee. Of course, if you don’t hold credit card, there will not be any need for this cost.
- Fraud: The level of security on cards notwithstanding; there are still various reports on card frauds every year. You can prevent some of these frauds if you keep your card information secure. Don’t disclose your credit information on websites you don’t trust.
- Debts: The use of credit card gives you access to credit which in turn can push you into debts if you are not disciplined. Some of the rewards credit cards encourage large purchase before you can qualify for bonus or rewards. If you are chasing such rewards, you will not know when you buy things you will not be able to pay for. Before you know, you are already in deep debts.
- High interest: Except you have a very good credit score, the interest rates on credit cards are very high. When you add up the monthly interest at the end of the year, the figure can be staggering.
- Credit damage: If you don’t know how to manage your credit card, you can hurt your credit without knowing. For example, applying for too many credit cards at a time will have bad effects on your credit. The credit bureaus will assume you have financial pressure to be applying for two or three cards the same time. Also, if you max out your credit card or you are not making your payments when due will surely damage your credit.