4 Facts You Should Know while Applying For First Credit Card
At first glance, a credit card might seem like an extra tool for you to buy the things you want; however, the purpose of credit cards goes much beyond just making purchases. If you use a credit card with responsibility, you can build a credit history for yourself. A credit card allows you to get insurance plans, loans at affordable rates of interest and a new plan for your cell phone too. When you use credit cards, you can earn daily rewards from them as well.
What are the benefits of a credit card?
Credit cards come with a lot of benefits. As mentioned above, you can build credit. With good credit, you can get loans in the future like a mortgage at affordable rates. You can also get approved for cell phone plans or buying an apartment. A credit card will also help you avoid depositing for utilities. Most of the credit cards available in the market today provide you with travel rewards and cash back generally around 1-2% of the amount you spend. Some credit cards give you bonuses for signing up.
This bonus can be for hundreds of dollars. You can also get travel or shopping benefits to help you save money. Some cards give you a zero percent promotional interest period. When you are granted a credit card, the credit statement will provide you with all the details.
If you are applying for a credit card for the first time, keep the following in mind-
Understand what a credit card
A credit card is a debit card. Here, the funds are not removed from the checking account directly when you buy something. It is like taking a loan for a short-term. This loan may or may not collect interest- it depends on how you are paying off the loan. For buying things in a specific billing cycle that is 30 days, you get a small grace period before the payment is due. If you fully pay the balance completely by this due date, you will accrue interest on the average balance daily.
Know the difference between an unsecured and secured credit card
A secured credit card is backed with a cash deposit and this is generally equivalent to the limit of the credit card amount. This is collateral that reduces the risks of not paying for the card. This type of credit card is ideal for those people who do not have a solid credit history.
However, note that secured cards are not like prepaid cards. This means the cash deposit does not get exhausted as you spend with your credit card. The payments are made like an unsecured credit card, and if you do not pay the balance off fully, you have to pay interest. When you cancel the secured card or move into an unsecured credit card, you are returned with the initial deposit you have made only after you have completely paid the balance off.
On the other hand, unsecured cards do not require a cash deposit or collateral. The credit limit for the card is allotted to you as per your monthly income and credit history. This means you will get a very low credit limit for your first savings credit building credit card.
The credit card company take more risk into their hands when they give you an unsecured credit card. If you do not have a good credit history, you should start with a secured credit card. You may get an unsecured credit card with a co-signer. You can even ask to be added to the credit card account of your relative or friend. You are in this case authorized to use the credit card. You will also benefit from the good habits of the, and you are not legally obligated to pay the dues of the credit card.
Know how the grace period of your credit card works
One of the biggest advantages of a credit card is you get a loan that is interest-free with a grace period of 21-25 days. For instance, if you have a credit card cycle from January to 4th February having a due date for March 1st, all the purchases you make with the credit card will be free from interest till the date of the payment. In case, you do not pay the balance dues of your credit card before or on the 1st of March; you will owe interest on the daily balance on an average basis.
If you pay off the monthly credit card dues on time, this grace period permits you to extend the time you need to pay for purchases without incurring interest rates. This period is the gap between the billing cycle of your credit card and the date when the credit card payment is due. The law states that the credit card statement should be given to you at least 21 days ahead of the due date so that you know how much you need to pay and by what date.
How do these billing cycles and monthly statements work
The credit card statement that is given to you every month will include the date for the payment you owe to the company -21 days ahead of this date is called the closing date also known as the statement date. This is the date where the credit card company adds all the transactions done by you during the previous month and has paid them for you. Any purchases done by you after the closing date appears in the bill of the following month.
If you pay the balance off during the grace period, you do not need to pay interest charges for all the purchases you have done during the billing cycle. The credit card company has lent you money free of cost for 3 weeks. Note that the above applies to credit card purchases only and not advances made towards credit card payments.