Credit cards have taken the world by storm since their invention, and these days, they seem to be more important than ever for building up a credit portfolio. Unfortunately, there are inherent risks that come with owning one, and for that reason, a lot more people are steering clear of them for a long time into their adulthood. Is that a good approach, though?
Well, it’s hard to answer that without first delving into what they are, how they work, and why they’re risky in the first place. Unsurprisingly, this is a pretty complicated issue altogether. There’s a lot to cover.
At the start, they were primarily created as a sort of convenience tool. Carrying around cash all of the time isn’t always a good idea, after all. However, as time has gone on, they’ve taken on a few other roles as well. Primarily, they’re a part of how people generate a good credit score and overall portfolio. The downside here is that all of this convenience means that it can be very easy to overspend with them.
Perhaps that’s why so many people are looking for ways to get an affordable credit card that suits their individual needs in terms of their previous borrowing history and their current financial situation. If that sounds like you, then you might find this article helpful! Follow along for more details about all of this and more.
Credit Card 101
Now, it’s pretty obvious that a credit card is a little piece of plastic that we carry around with us and can make purchases with. However, as far as the intricacies of them go, this definition doesn’t really cover it. Something like this, https://www.fool.com/the-ascent/credit-cards/how-credit-cards-work-beginners-guide/, might help in terms of getting the basics down.
What else is there to know, then? Because they are a type of credit agreement or loan, sometimes there can be a lot that goes into the process of getting one as well as managing them once we do get approved. Most of the time, that’s where confusion starts to arise.
For a long time, people began to think about them as a way to sort of spend “free” money without having to worry about it until later. Alas, this is a really bad way to approach owning a credit card. Just like with any other type of loan, there will be an expectation that you pay back the entire amount that is spent. In addition to that, there will be interest charged.
Now, as far as affordable or “cheap” cards go, the interest rate probably won’t be quite so high as the other ones that are out there. However, it’s still generally a good idea to think about credit cards as a type of loan rather than extra spending cash. That way, you’re a lot less likely to unintentionally overspend with your card.
Applying: What’s Involved?
Perhaps the most arduous part of having one is the initial step, which is applying for one. Often, you’ll have to try with several different lenders or providers before you get accepted, depending on what your credit score is. As with most types of credit agreements, those three little digits will be playing a huge role in your odds for approval.
So, when you do decide to apply after considering all of your options, you’ll want to be prepared for that. It’ll probably end up taking you an hour or two of your time depending on how organized you are with paperwork and the like. Either way, it’s something that you should take seriously. Otherwise, you may end up not getting approved.
The trouble with that is that each time a creditor is checking your score, it reflects on said score negatively. This is known as an “inquiry” on your account. They can be either “hard” or “soft” inquiries. As long as you aren’t trying to get a ton of them at once, though, there likely won’t be any issues.
How it Works
Once you get your shiny new card in the mail, what can you expect? Obviously, to some extent this will change depending on who your holder is, but for the most part, there are some general things to be aware of and that you can expect. The first thing to note is that you will have a pre-determined limit on your line of credit.
While this might sound like something stressful or bad, thankfully it’s really not. All it means is that you will have a set amount that you can spend in the revolving door of credit available to you. Typically, this ranges from a hundred dollars to a thousand, but this will vary depending on the currency and more.
Next, take into consideration what your grace period looks like. For most of the billigste credit cards out there, you will notice that you have the rest of the monthly billing period before interest starts to get charged on the balance. Therefore, if you’re able to do that, you’ll be saving yourself some money and a headache down the road.
When you do make those payments, you’ll be able to tap into the line of credit again, which is why it’s considered to be “revolving.” It’s pretty simple in practice, thankfully. If the balance carries over into the next month (i.e. the grace period ends), then you’ll end up owing interest on it.
Interest is where folks tends to end up getting into trouble, you see. Because it can often lead to even the smallest of purchases being a lot more expensive, that’s when people end up getting into a lot of debt that’s difficult to pay off. Unfortunately, the balance will just keep growing with each payment period that goes by without payment.
Responsible Ownership: Is it Possible?
With all of the talk of getting swamped in debt, it can certainly feel intimidating to get a credit card. However, don’t let it scare you away from submitting applications. There are plenty of ways to responsibly own a credit card. In fact, you can use it for good!
Again, though, the key to it is to watch your spending closely. Don’t put a bunch of charges on your card that you know you won’t be able to pay off later – especially if you won’t be able to do so within the grace period on larger purchases. The thing is, the bigger the balance that carries over between billing periods, the more that you’ll end up owing. This does tend to grow exponentially.
If you’re avoiding doing that, though, you will most likely be find in terms of having a credit card. As long as you’re being conscientious about your budgeting, typically there will not be any issues that crop up. For anyone who is nervous about getting their first card, though, you can try a strategy that tends to work quite well for new borrowers.
What’s it look like? Well, the idea is to make a small purchase on the card in each billing period. Usually, it works best if this is done at the start of the period so that you have the entire rest of it to pay that amount off. Of course, if it’s something like twenty dollars, that might not really be a concern anyhow.
Even though these transactions will be quite small, they will still play a huge role in increasing your credit score. Each time you pay that bill on time or early, it reflects positively on your overall borrowing history. Starting off this way gives you a nice foot to stand on as you decide to get a card with a larger balance in the future.
To finish out our discussion today, let’s figure out some of the things to look for as you decide what credit cards to apply for. Again, the “cheapest” or most affordable ones are generally those that have the grace period as well as having lower interest rates. Combined, this can mean that you’re getting a pretty good deal as a consumer.
Finding the ones that are like that can be a challenge, though. One way to start looking is to check out some reviews that financial experts or analysts have written about the various ones that are out on the market. You can also use some of the resources above if you’d like to compare specific ones with each other to see what fits your lifestyle best.
Additionally, keep in mind that because there are different types of cards out there, some of them might be more appealing than others. For instance, you may want to go for a specific type of rewards card if you frequently make one type of purchase over others. Some retailers offer specialized ones, too, but most of the time these aren’t really recommended by experts because of the extra fees that they can incur.
Most importantly, though, once you have been approved, you’ll want to read over the contract that is being offered to you. Talk to your financial advisor, too, if there’s anything you’re unsure of. You can also ask the provider as many questions as you want.
Understanding what you’re getting yourself into and agreeing to is absolutely key. Otherwise, you could end up with a nasty surprise on your hands like a huge interest fee or a limited-to-nonexistent grace period. Those are the sorts of things that can make or break a credit agreement for someone, so double check what’s going to be involved before you make a firm commitment to anything. You can always say no if it’s not what you want.