Introduction
Credit cards are very important tools that help you to build your credit. You can also earn many rewards from credit cards. If you responsibly use credit cards, your financial life improves. But they can also destroy your credit score if you don’t use it properly. You should set a budget and spend according to it.
Credit card interest rate
The interest rate of credit cards is referred to as the annual percentage rate APR. If your annual percentage rate is high, then you have to pay more interest.
Types of credit cards
Credit cards are of different types. Some are general credit cards, while others are used for specific purposes.
When you use these cards, you get back rewards for all the money you spend. You may get this reward in the form of cash, and this cashback varies from 1% to 5%.
If you pay for your travel expenses using travel credit cards, then you’ll get credit points. Many benefits are available such as discounted rates etc.
If you shift your credit card balance to a balance transfer card, then you may save a good amount of money. The interest you pay depends on the terms of the credit card,
This card is very useful for students who are pursuing their high school or college and do not have good credit histories. If a person is below the age of 21 years, then he has to provide proof of his income or an adult as a co-signer to get approved for the card.
Using these cards can improve your credit history. You have to deposit the amount, and you get a credit limit. If you use a secured credit card responsibly, then it may upgrade to a standard credit card.
Benefits of credit cards
The credit card does not take out money directly from your bank account, so there is no need to worry about losing your money. This is a very safe method for all kinds of transactions.
You get a lot of rewards and benefits if you use credit cards for your transactions. But the only condition is you’ve to use your card responsibly.
You can buy items from your credit card and pay later near the due date, and for this, you don’t have to pay interest. This is a bit risky.
If you pay your bills regularly on time, it has a positive impact on your credit score and credit history.
Risks of using credit cards
Interest can accumulate very quickly
If you spend a lot of money on your credit card and do not pay your bills on time, then you will have to pay a large amount of interest, and if you don’t pay the interest, there will be more and more interest that you have to pay, and you will be trapped in a cycle of debt.
People usually have a misconception that credit card money is for free, and they keep on spending the money. This leads to overspending, and you might not be able to pay the bills, and this might be troublesome for you.
If you do not use your credit card responsibly, then it may harm your credit score. There will be negative information on your credit card report, and this will lead to a decrease in your credit score. Also, you will be charged a large amount of interest, and you will find yourself caught in debt.
Using credit cards or responsibly
Before applying for a credit card, one must plan and think about how to use a credit card responsibly so that you do not face any difficulties such as paying large amounts of interest or some other difficulty due to which you may get caught in debt.
Planning is considered a key to keeping your credit card safe and working for a longer duration of time without facing any difficulty. For this, you have to set a budget and spend the money within the budget only.
You should pay your bills on time, at least the minimum amount of payment should be paid on time in order to avoid any late fees. If you missed the due date, that is, you didn’t pay before the last date, then it may lead to a decrease in your credit score. But one should always try to pay the full balance.
What are the things to avoid?
To get the most benefits of your credit card, you should avoid some mistakes. These are
Treating the card like free money
People usually always spend money and do not keep a check on their balance. But they don’t know that spending money will add to their interest. You should use your credit card in such a way you use cash.
People sometimes choose the wrong card, such as they choose the cashback card to get cashback for each penny they spend. You may spend a lot of money to get various rewards, but this actually leads to overspending.
One should first get a card that provides a flat rate reward for spending money. A card that gives you 2% cashback is considered a good card for the starters. Once you have learned how to earn rewards, then you can go for a higher card, which offers higher rewards.
You can use these higher rewards that you receive for various purposes, such as travel, groceries, etc. The cards having an annual fee require that more money should be spent in order to get rewards.
Applying for too many credit cards
If you frequently apply for many credit cards, then there is an inquiry on your credit report, and this causes a fall in your credit score. Also, if there are too many inquiries on a project report, you may seem riskier than us, and the lenders may not provide you with further assistance. This is due to the reason if you apply for a new credit card, your score falls.
The welcome bonus is a kind of incentive that is given to cardholders by the card issuer if they spend money using their credit card. The rewards can be in various forms, such as cash, points, or miles. Welcome; bonuses are not offered by all credit cards. The balance transfer credit cards and the credit building credit cards do not provide any welcome bonus.
Travel credit cards provide the largest welcome bonuses, whereas reward credit cards provide the least. The reward credit cards do not require a lot of spending in order to provide a welcome bonus. Most of the credit cards require a certain minimum amount of expenditure in order to become eligible for the welcome bonuses.
If someone owns a welcome and the credit card issue is provided, your bonus is at different times. For example, American Express delivers welcome bonuses within 8 to 12 weeks after you become eligible.
The welcome bonus is generally meant for the purpose that you can spend money using your credit card, but it doesn’t mean that you have to overspend to get a welcome bonus. If you overspend with your card, you will find that the bonus you get is much less as compared to the interest you have to pay, so there will be no use in getting such a bonus.
The best way of getting a welcome bonus is to spend the money in your budget and still manage to get a good welcome bonus. Otherwise, there is no use in getting a welcome bonus if you are overspending using your card.
You can earn a credit card welcome bonus using the following steps.
Firstly, you should qualify for a credit card, which provides a welcome bonus.
After getting the card, you should use it in a very planned and strategic manner so as to avoid overspending.
You can earn welcome bonuses from different types of cards. As we discussed earlier, travel cards provide the highest welcome bonuses. So, one way of getting a high bonus from a travel card is to use the card for your trip expenses. Also, you can use it for buying new furniture or household items.
Getting most of the welcome bonus
The rewards that you earn from welcome masses are directly added to your account, but the welcome bonuses, which are earned as points or miles, their value depend on the method you use to redeem them. If you redeem it for your travel expenses, you get the most out of it.
How to apply for credit cards?
The company looks at various factors before issuing a credit card. They will look at your financial information. The information that is needed is your name, age, social security number, annual income, etc.
Based on this, they will decide if you’re eligible to get the card or not. If your debts are greater than your income, then you do qualify for getting the card.
What if the application is declined?
If the lender declines your application for the card, then he has to provide a valid reason for declination. Once you get to know the reason why your application was declined, you can work on those areas and try again to get the card.
Improving chances of getting the card
If your application for getting a credit card is denied and you want the chances of you getting the card to increase, then you should follow certain things such as reviewing your credit report and working on things such as late payments, high debts, etc. Also, you must ensure that you pay your bills on time. For this, you can use the autopay option for making payments.
Using cash back cards effectively
Most of the cashback cards do not charge any annual fee. If your cash-back credit card charges an annual fee, then you should compare the annual fee with the rewards that you’ll get. If your annual fee is more than the rewards you’re getting, then do not consider using that card.
Conclusion
We learned about credit cards and their types and credit card interest rates. Then, we discussed the types of credit cards as well as the benefits and risks involved in using these cards, how to use credit cards responsibly, and what to avoid while using these cards.
After this, we studied welcome bonuses, ways to earn welcome bonuses, and how to get the most out of them. The process of applying for credit cards is also mentioned with tips for improving your chance of getting a card issued by the lender.