Receiving a brand new credit card can feel like an answer to your prayers - you can now make that long dreamt-of purchase or maybe even go on that overseas vacation you'd been thinking of.
Now that you've established the need for a credit card, you need to ensure that you not only use the card the right way, but that you've also picked the appropriate one - else what had started off as a dream come true could turn into a veritable nightmare.
Reaching out for a pen to make a credit card application? Shop around, and decide which card will suit your needs the best. But before you do, let's take a look at some of the things you should keep in mind prior to submitting that application form.
Know the charges - This includes annual fees that would be applicable on the card. Very often, as an introductory offer, card issuers waive these charges for the first year. Subsequently, however, they may be levied, and you should be aware of the amount.
In addition, do ask whether there are any other charges or fees applicable - typically, for example, every card will carry late payment fees, if you fail to make a payment on or before the due date. These charges can be high, and would add a significant amount to the outstanding on your account. Service charges and finance charges can also cause a dent in your pocket.
Interest rate - If you use your card judiciously, there will probably be no occasion wherein you would need to pay interest and finance charges for rolling over the card outstanding. But if you do, keep in mind that these charges tend to be very high - as much as 36%, with a compounded rate of interest.
Further, card issuers offer teaser rates for the initial period that you hold the card. While these rates may seem too good to be true - that's just what they may turn out to be. Do check the rates that will apply over the lifetime of the card, and not merely in the introductory period. Hence, before you step out into the unknown, be armed with accurate information!
Know the credit limit - While the adage 'the sky is the limit' is indeed likely on your new card, it is better to be prudent when it comes to usage. Hence, do take a look at the limit being offered to you. While it should not be a paltry sum that can hamper your purchasing power, it needs to be set at a reasonable amount.
The dangers of overspending are rampant with the ease that a credit card offers - hence while exceedingly high limits are a feel-good factor, they are best avoided. A credit card can prove beneficial in creating a good credit history, provided it is used judiciously.
Read the fine print - This can never be stressed upon enough: always read the fine print. That way, you'll not have any surprises when you're dealing with the card issuer or bank. Going though all relevant information with a fine-tooth comb ensures that you can rest easy, as you are then aware of each aspect of your card. Do not hesitate to ask questions, if you have any, prior to signing on the dotted line. Remember, it is better to be (slightly) overcautious initially, rather than winding up cash strapped.
Get familiar with your Credit report - This is a critical document that lenders scrutinise when you apply for a new card. The report essentially helps a lender predict the borrower's creditworthiness, by going through previous payment history. Hence, prior to application, it would be a good idea to obtain a copy of your credit report and go through the score. Should the score seem low, you could consider spending some time in bettering it, as this could be the difference between being offered the best deal for your card. A good score will help determine the rate of interest and other terms on the card.
If it seems to be a task you don't want to handle alone, consider availing of the services of a credit health monitoring company. Professionally trained counsellors will work with you to better your score, and subsequently maintain it. Hence, when you do apply for that credit card, you know you stand the chance of getting the best deal.
Now that you know these safety rules when applying for a card, maybe it's time to go ahead and make that long cherished dream come true!