Friday, 23 December 2011

Credit Cards - A Starter's Guide to Credit Cards

Plastic money is the foremost mode of payment these days, so it seems. In almost every establishment you go to, they accept these as payment facilities and not only that, when paying for goods or services using a card, consumers are offered discounts, rewards or points and other promotional strategies that make the usage of credit cards for transactions all the more attractive than good old cash.

If you're new to the world of credit cards, it will be wise to first familiarize yourself with how they function before getting one. Knowing how plastic money works will help you become a responsible card-holder and avoid the risks that usually come with owning this type of payment tool. Although having a credit line can make transacting easy and hassle-free, it also makes it easy for one to plunge to indebtedness which can really make life difficult, especially for one who is just starting out.

Here's a simple guide to plastic money for beginners which you can use to choose the right type of account for you.

First, There Are Different Kinds of Credit Accounts

Creditors offer the following account types:

• standard credit cards

• student charge plates

• premium account

• limited purpose accounts

• secured accounts

• prepaid or debit

• business or corporate accounts

As a beginner, your best option is the standard type, or if you are still a student, the student account. A standard payment facility allows you to have a revolving balance up to a set credit limit. When credit is used up, it will be replenished once payment has been made. The student account works the same way however it has a lower credit limit and rate. All credit accounts have a minimum payment that needs to be paid by the due date to avoid late-payment penalties.

Second, Creditors Have Requirements that Need to Be Met

For a beginner, it may not be easy to get approved for your first credit card. Providers and banks will of course have qualifying criteria that can more or less decide your chances of getting approved. Most banks and companies will require the following:

• Applicant must be of legal age (18 years old and above)

• Applicant must have a suitable income (South African banks and companies usually require an annual salary between R24,000 to R36,000 for the standard type. For the student type, it's as low as R2400 a year or R200 a month)

• Applicant must have a good credit score

Since you may not have a credit record yet, don't expect to be approved on your first application. Once you get approved however, protect your credit score by keeping your plastic money applications at a minimum.

Third, Credit Cards Have Certain Features

These payment facilities come with various features as well like credit limit, balance, interest rate, grace periods, and incentives or rewards. These features should influence your decision-making as they can greatly affect the cost of the credit account you're applying for. If you're not going to use the charge plate frequently or if you want one for emergency purposes only, then look for a creditor that offers interest-free days and be sure to pay each bill in full before the interest-free days expire. If you need an account for cash advances up to the credit limit for short periods at a time then look for an account that comes with low annual and cash advance fees. Be sure that the interest rate charged for cash withdrawals is reasonable as well.

The rewards and incentives that creditors offer should also be weighed according to how you plan to use your plastic money. Some providers offer frequent flyer miles, cash backs on credit spent on shopping at certain stores or online, etc.

Fourth, Don't Take the Fees For Granted

As you may well know, creditors charge fees as this is how they make money out of card-holders. Credit cards don't all come with similar charges or fees though. One creditor may charge a lower annual fee than another but will charge a higher interest rate on balance transfer or cash withdrawal. To attract customers, creditors may offer really low monthly or annual account fee which is actually good but be sure that there is no catch. Go through their list of fees and check on their charges for balance enquiries, statements, balance transfers, purchases, cash advances, etc. These other charges can greatly add up to the overall cost of your credit account.

Find out ways to avoid these charges like not drawing cash if you can use the charge plate to pay for a good or service, checking on your account balance on the bank's or creditor's own ATM if it's for free, not getting a secondary charge plate if it's not necessary and more importantly, not going over your limit. Over-limit charges are often hefty, no matter the creditor, and are not so good on credit records.

Lastly, Commit to be a Responsible Card-holder as Early as Now

Don't apply for a credit card only so you can experience transacting with plastic money or so you can practice paying without cash. Always keep in mind that creditors always favor those who are responsible in utilizing credit. As a beginner, once you're approved and you get your first charge plate, don't go on applying for another one. Your first credit account can be used to establish a good credit rating which you can take advantage of in the future in case you want a better credit account with a higher limit or if you need a loan for your first brand new car or house. Use your card responsibly:

• don't go on a shopping spree every other day

• understand your creditor's billing process in order to understand how you are being charged and why

• always pay on time

• don't go beyond the set credit limit

If you practice being a responsible card-holder as early as now, it'll become a habit and you will have lesser financial troubles in the future.

Take A Look Here

South Africa has a plethora of credit card options and if you want to know and compare them, click here now.

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