Receiving your first credit card is always worth celebrating. It acts as a symbol of newfound financial freedom for any young adult. Whether buying a new phone or traveling to other countries, the world is finally your oyster. However, many fail to realize that with this freedom comes the responsibility and accountability you get after your purchases.
Being financially responsible is key to ensuring your financial journey becomes as stress-free as possible.
Your credit card becomes a helpful tool when you use it responsibly and make payments on time and consistently. Diligent payments can help improve your credit rating, eventually leading to rewards with little to no interest added.
Five Things To Keep In Mind With A Credit Card
While credit cards are great, remember that they are privileges banks give and can take away if misused. Check out this list of factors you need to consider when you become a proud credit card owner.
- Buy within your limits
Having a credit card for the first time can make it seem like anything you want is yours for the taking, but don’t be fooled. Make budgeting and rationing money a habit, and make sure you can pay the bills when it pops up.
In general, not only would overspending be looked down upon, but as a first-time credit card owner, this may not be the ideal first impression you would want to give to your bank and potential lenders.
- Pay your bills on time
Along with the financial responsibilities of owning a card, you must also be accountable for paying for the things you bought when the monthly bills come. Missing a payment or being unable to pay can impact your credit score negatively.
Likewise, paying off bills on time improves your credit score and lets the lenders see you as an upstanding lendee responsible for your credit.
- Keep monthly credit payments below a certain percentage of your total credit limit
A credit limit is a maximum amount you are entitled to spend on a credit card. Knowing your limit, however, does not imply that maximizing it is a wise decision. Mastering budgeting today will probably increase the amount you can borrow should you decide to buy significant investments like a house or a car.
Going beyond your assigned credit limit can cause financial troubles in the long run, like debts, added fees, and a negative credit score. A universal rule of thumb is to stay within 10% - 30% of your credit limit.
- Be mindful of how you use your card
Being mindful of spending makes it easier to control your credit card. Excessive use of your card can often land you in debt. When using your credit card, prioritize your needs over wants, and only buy what you want if you can afford it or have money to spare from your monthly budget.
- Maximize credit card rewards
Using your cards can eventually make you eligible, leading to significant savings in the future. A great way to maximize credit card rewards is to make important purchases, like traveling fees, because they let you earn more points. There are three types of rewards that you can avail of once you reach enough points
- Cashback
- Vouchers
- Miles
Swipe Wisely
While the initial challenges of owning a credit card may seem daunting, the added convenience and benefits of being a cardholder make it a beneficial commodity. As a first-time cardholder, however, it’s essential to be mindful of the limitations of your first credit card. Find a lender that gives you good terms and conditions and offers you the most, based on your credit position.
Abiding by practices and habits can save your future self from financial difficulties and struggles. You’ll be thankful you made smart financial choices.
