Many Americans fall into the debt trap because of the mistaken belief that credit cards are a kind of free money. So people are gaining a large debt, which is starting to grow faster and faster. What you need to understand before you open a credit card for the first time is that credit cards require a serious attitude from their users.
In order not to get into financial difficulties associated with a large constantly growing credit card debt, you should take a responsible approach to your obligations and learn some important things about credit cards.
If you are going to open a credit card for the first time, here you can find out what you need to learn before that. The information outlined below will help you begin to build a prosperous financial future along with the most suitable credit card for you. So where to start?
Understand the definitions
Before applying for a credit card, understand the terms that are used in the conditions and in the agreement with the lender. You need to learn what the interest rate means, what these numbers are and what they affect.
When you choose a credit card, thanks to the understanding of these terms you will be able to make the best choice from the many offers that exist on the market today. You can see a very attractive reward system, but then you can see an exorbitantly high interest rate or a large annual payment that crosses out all the benefits.
So, the interest rate (APR) determines the percentage of the principal amount of the debt that you will have to pay to the lender above this amount. If the interest rate is 15%, then after borrowing $ 1,000, at the end of the year you will have to return 15% more, that is, in this case $ 150 more than you spent.
The bad news is that credit cards in most cases have a floating or variable interest rate, depending on the amount of the debt and your creditworthiness. In addition, it is more difficult to calculate in order to manage your debt.
But credit cards are not so simple, so there is still an introductory or teaser rate, which is valid for a certain period from the time of the credit card registration. Initially, this is a very attractive rate, but when its period ends, the teaser rate rises sharply and no longer decreases.
You should always take this circumstance into account and know when it expires in order to control your debt. The rate changes significantly, so if you miss the moment when it happened, then your debt can grow very quickly.
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Many credit cards have an annual fee, which under any circumstances, until you close the credit card, is automatically withdrawn from it annually. This is usually the amount set by the lender, which does not change, no matter how you use or do not use a credit card.
This is also a very important point, because some credit cards may have a high annual fee of several hundred dollars. To compensate this fee by means of rewards it will take a lot to spend with this card, although usually such credit cards are not available to those who have no credit and no borrower’s credit history.
However, the best credit cards do not have an annual fee, especially cards intended for beginners. But in any case, always carefully read the contract with all its footnotes, usually marked with asterisks and small print, because they often have important conditions under which additional fees may be charged.
The credit limit or credit line determines the upper limit of the amount of money you can spend with a credit card. For those who open a credit card for the first time, the minimum limit of $ 500 is likely to be set until the lender sees how you handle this money and your debt.
If you repay the balance in a timely manner, then creditor will raise the credit limit to the next level, for example, up to $ 1,000 and so on, if you do not allow overdue payments and do not keep a high balance. If you are late with the payment or skip it, then the following item awaits you:
This is the amount or percentage of your debt, as set out in the contract, which you will have to pay on top of your debt and interest rate. If you are going to open a credit card for the first time, then believe me, it is better not to miss payments and not to be late. It is hardly that you will like to pay several hundred dollars more or get a decrease in the credit line.
Find a co-signer
Most often, people who are going to open a credit card for the first time have no credit history and no credit at all. No credit is considered by lenders almost as much as bad credit, so it can be difficult for beginners to get approval on a credit card.
What to do then? How to get a credit card if you do not have a credit history? If you find someone who already has good credit, someone you can trust, such as a family member, parent or spouse, then that person can be your co-signer or sponsor.
Your co-signer becomes your guarantor to the lender and his credit becomes yours too. Of course, in this case there should be mutual trust and responsibility of both parties to the deal so that one does not pull the other down to the bottom by their actions.
Filling out an application
When you intend to open a credit card for the first time, figured out the definitions and concepts of credit cards, chose a card with the best conditions for you, found a guarantor or decided to do without it, then it’s time to apply.
Fill out all the necessary information in the application form with relevant data. Inform correct data about your income without overstatement, as well as gifts and other income must be taken into account. Accurate information will increase your chances of approval.
Now the Internet makes it easier and faster to apply for a loan. Lenders often issue a preliminary decision in a few minutes or even seconds when the process occurs automatically.
Read our financial blog to know how to properly handle loans, as well as how to build your credit to get great financial opportunities and a prosperous future.