Maintaining a credit card can be a great way to boost your spending power as a consumer. Not only do credit cards allow you to access extra funds every month, but they can also provide you with the opportunity to earn additional points or rewards with every purchase you make. And on top of all of this, using your credit card responsibly can also have a positive impact on your consumer credit score.
All said and done, however, signing up for a credit card is still a major financial decision and as such, it’s not a step that should be taken lightly. You should do thorough independent research into all the credit providers available to you before settling on any single credit card. It’s also a good idea to gain a strong understanding of the credit spending process.
Here are some of the other top five considerations you should make before you sign up for your own personal credit card.
1. Read up on what’s expected of you as a credit cardholder
First, it’s important to keep in mind that there are a wide variety of credit cards out there. For instance, you could sign up for a no annual fee credit card with larger interest rates, or you could sign up for a card with a $199 annual fee that also happens to offer longer 0% interest periods or more attractive rewards. With the immense variety of credit options available to consumers nowadays, the single most important thing that you can do when looking for a credit card is to simply understand what responsibilities you’ll have to bear as the cardholder.
How long is your card’s statement period in relation to your interest free period? How are your minimum repayments calculated? Are there late fees or other charges that you need to be mindful of? Being aware of all of these factors can help you avoid unexpected or unforeseen charges.
There are even credit cards that you may have to pre-qualify for or put a security deposit down for before you actually get to start spending. Being aware of what your credit provider wants from you as a consumer can help you make sure that you’re using your credit card in all the right ways.
2. Understand the relationship between your credit card and credit score
Although it’s true that responsible credit spending has the power to improve your credit score, it’s important to remember that there are ways for credit spending to damage your credit rating too. For example, spending too close to your credit limit every month can actually have a negative impact on your credit score. Similarly, failing to make your minimum repayments can also hurt your credit score, and once that damage is done, it can be tricky to build your rating back up again.
But why does this matter? Or to rephrase, what’s the value of having a strong credit score anyway? Truth be told, having a healthy credit score is actually very important, as a stronger credit score can help you qualify for larger loans in the future. If you have ambitions to be a homeowner later in life, having a strong credit score can help you secure a home loan that’s large enough for you to purchase your dream home.
Similarly, if you’ve ever dreamt of starting your own business and are planning to take out a business loan in the near future, having a strong credit score can help you secure the funds that you’ll need to set your company up for success. So keep these ambitions in mind whenever you spend with your credit card, just so you can improve your chances of cultivating a strong credit score with every purchase you make.
3. What do you want from your rewards program?
Of course, you can get more from your credit card than just a strong credit score. As we mentioned, credit cards are also accompanied by rewards programs that allow cardholders to earn points with every purchase that they make with their credit account. And when it comes to selecting the right credit card to suit your spending needs, considering the rewards programs that are available to you is a great way to help you get all the perks you’d want.
Are there card providers that can offer you discounts at your favourite stores with all your hard-earned card points? And may you even be able to redeem points for travel purchases like flights and accommodation, allowing your credit spending to help you shave precious dollars off of every vacation in your future? These are the kinds of perks that you should be looking out for!
In reviewing the rewards programs of multiple credit card companies, you’ll also increase your chances of finding a card that aligns perfectly with your consumer needs and lifestyle. So be sure to do plenty of research here and read up on all the rewards programs that are available to you.
4. Review the extras that are available with your credit cards
It’s also worth mentioning that rewards programs aren’t the only perk you may be able to experience when you sign up for a credit card. A lot of credit card companies have partnerships with other big brands, which may allow you to enjoy ‘free’ extras with your credit account.
For example, if your credit card is able to offer you discounts on things like club memberships or accommodation rates at a particular hotel chain, then these nifty perks should also be considered when finding the right credit card to fit your needs. If you travel often or are already spending a bit of money on a club or gym membership, securing these credit card extras may help you save hundreds of dollars annually without you even needing to adjust your lifestyle.
Just keep in mind that even if a credit card does have an extensive list of ‘free’ extras, you’re more likely to be making up for these ‘free’ perks elsewhere in your card arrangement. Some credit cards that have extras may have higher interest rates or a larger than average annual fee so that the costs balance out.
5. Develop strategies for spending with your credit card
Finally, it’s important to remember that there are risks with owning a credit card, just as there are risks with maintaining any kind of financial asset. Credit cardholders may fall victim to credit card fraud or find discrepancies in their card statements. And whilst these risks can easily be rectified or addressed, resolving them can still be quite a headache.
On top of this, credit cardholders also run the risk of accidentally falling into debt if they don’t use their credit card conscientiously. Because of this, cardholders are required to practise consistently savvy spending habits and maintain a balanced approach when it comes to utilising their credit cards.
With that, you’ll want to develop strong strategies for your credit spending before you even get your credit card. Find ways to stay firmly under your credit limit every statement period and outline exactly how you’d like to use your card personally. Do you want to use your credit account to help pay off household bills? Or is it only for larger expenses, allowing you to earn a maximum number of points on luxury purchases? Understanding just how you’d like to use your card and sticking with these strategies can help strengthen your chances of walking away with a credit history that works to your advantage.
All things considered, being a conscientious credit cardholder is really all about maintaining discipline and an awareness of the ‘big picture’. After all, even though some may consider using a credit card as spending somebody else’s money, all of those repayments are returned to you in the end. This makes credit accounts a more dynamic way of spending your own money and taking total ownership over your own finances. So long as you view this financial asset like it’s wholly your own, you should find that your credit cards can work for you rather than against you.
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