Credit card marks the beginning of your credit journey. Most young adults would like to be a part of the professional and mature crowd. So, when a bank reaches out to them to offer a credit card for the first time, it can be quite an exciting feeling for them. However, it is important to understand that the right time to get your first credit card is not when you are offered one, but when you think you are ready to afford the EMIs as an additional financial responsibility.
Getting your first credit card is much like moving into a new apartment. It starts with a lot of excitement and makes you feel independent but a few weeks later, when you realize you have to take care of everything on your own- from laundry to cooking, the entire idea of living alone seems underwhelming. Similarly, a credit card is not about buying new stuff, it is also about paying the bills on time and keeping a close watch on credit utilization.
Your first credit card is all about giving your credit profile a kick start. It is likely to offer some basic benefits and rewards. So, let us talk about what really matters with your first credit card.
- Easy Approval Process
At the time of getting your first credit card, you would be new to credit and have limited income. Banks would not be interested in offering you a card packed with numerous benefits so it is better to not apply for a card like this in the first place. Go for something more basic, something you think you can be approved for. A secured credit card can also be a good alternative for first-time users. These cards are secured against fixed deposits. Another way to improve your chances of approval is to approach a bank you have an existing relationship with. For example, if you have a salary account with HDFC Bank, you have good chances of getting approved for an HDFC credit card.
- Low Annual Fee
Your first credit card should be easy on your pocket. There are several zero annual fee credit cards with great features for a first-time user. Some banks offer credit cards with a minimal annual fee which is reversed on reaching a certain usage limit on the card. For your first credit card, you must choose one with low or no annual fee as a budget-friendly way to build a good credit score.
- Useful Rewards Program
Though, as first time user, you would not have many options to choose from, it is important to make the right choice among the available alternatives. For instance, a sign-up bonus can be beneficial for a beginner but if you are under the pressure of spending a certain amount to get that bonus, it may not be equally exciting. Moreover, some cards offer extra rewards on specific expenses say online usage or grocery purchase. Out of the options at your disposal, choose the one that offers useful rewards for you.
Best Practices Related to Your First Credit Card
Getting a credit card does not mean that you can go all out on it. You must spend only as much as you are confident of managing. At the time of purchasing something with your credit card, it may be difficult for a first-time user to assess how it will affect the finances in the coming months when EMI for the same will be due. Even a single non-payment on credit card can lead to the chain of missed payments and a pile of debt. To save you from facing such circumstances, we have listed a few practices that you must adhere to:
- Less usage, more benefits- Credit utilization ratio makes up a major part of your credit score. On your first credit card, banks will offer you a low credit limit. You must try and stay below the 30 per cent usage mark. Use the card to purchase things that you really need and cannot afford to pay a lump sum amount for it. Do not splurge.
- Pay in full- Though the bank allows you to pay a minimum amount if you cannot afford to pay the total amount due on your credit card, it is not considered a good practice. When you do not pay in full, the rest of the balance attracts heavy finance charges on daily basis and the new transactions that you make would not be eligible for the interest-free period.
- Pay on time- The time of making the payment of your credit card bills also impacts your finances. If you do not pay on time, the bank will charge a late payment penalty along with the finance charges for as many days as the balance lies unpaid in your account. Hence, you should pay the total outstanding amount on or before the due date.
- Check your Credit Report- Once you start using a credit card, your credit profile will be created. Nowadays, a number of third-party websites offer free credit score and credit report. Subscribe for one such service and closely monitor the transactions. In case of discrepancy, you should contact the credit bureau and get the issue resolved immediately.
Going Beyond the First Credit Card
Your first credit card is just a beginning; you have to move forward to the better credit cards in future. Follow the best practices mentioned above to create a good credit profile so that you can get approved for a better credit card. If you maintain good records and experience a steady growth in income, the banks would also be interested in giving a higher credit limit.
Since your first credit card is a basic one, the next time you can look for a card that offers benefits that suit your lifestyle. For example, if you think you are a traveller, it would be better to get a card with exciting air mile earnings and complimentary airport lounge access. Try to build a mix of credit cards based on the benefits provided.
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