Sometime ago I wrote an article about cash vs. credit, where I looked at the positives and the negatives of each spending system. The conclusion I drew then is still the conclusion I draw now; credit is an almost unavoidable part of society, so you might as well learn how to use it responsibly.
If you don’t already have a credit card, then I’m sure you’re at least aware of them. Today I want to look into how to get your first credit card and what you should think about/look out for, when you do.
1. Talk to your bank
Your bank is usually a good place to start. Go online and see what credit cards deals they offer. Even better, make an appointment and go in and see them to talk about it (trust me, they’ll think they’ve died and gone to heaven). By using the bank you already have a working relationship with, they know your financial history, and it’s really simple to set up payment information and new account details.
Keep your wits about you though; bank employees are trained to sell financial services, so they may push you to open a new card there and then. Don’t do it. Just see what they have to say, look through the offers they have, and use it as an opportunity to speak to an actual real live person about any of the questions you may have. Nothing you ask can be wrong. Make sure you’re as informed as possible.
When I opened my first credit card my questions to the lady behind the desk was ‘does the shop know I’m not spending real money?’ and ‘what is credit history?’. If you’re not taught these things growing up then you can’t be expected to be an expert straight off, so get information off those in the know.
2. Go online and look at good starter credit cards.
Do a bit of research; there’re a lot of well informed website out there with all the information you could need about finding the best credit card for you. The Balance has compiled a list of the best first credit cards for 2018, depending on your needs, and Bankrate offers a great comparison service.
3. Don’t get too high a borrowing figure.
This goes beyond just ‘being realistic’. This is no.1 list of important things to be aware of. Credit cards are a financial tool; they offer a financial advance on money that you are promising to pay back. This means that whatever you spend, you pay back. Simple right? In that case, don’t go looking for a credit card that will give you £10,000 borrowing potential if you’re only earning £20,000 a year. The higher your borrowing amount, the easier it is to borrow more and more without staying in control of your repayments.
This obviously a bit of an exaggeration; most credit card companies will not offer you 10k as a first borrowing sum. However, it’s something to keep in mind when you are looking at potential credit cards. Use it as a red flag if one company gives you a much larger limit than the others.
Keep to a limit that you can realistically pay back. It’s also worth noting that over time, as your credit history improves and you ‘prove yourself’ as a reliable borrower, your bank or credit card company will usually write to you and tell you that they have automatically upped your borrowing limit. This is another thing to keep an eye on. Again, don’t let them up the limit to a potentially unmanageable amount that could lead you into a crippling debt spiral. You are well within your rights to ask them to reduce the amount back down to something you are more comfortable with.
4. Make sure you really understand how it works
As I told you, my questions to the lady in my bank when I was getting my first credit card really showed how little I understood of the process. My brother, when he got his first credit card, assumed that the bank just knew that he was borrowing the money so would take it out of his account in the next few weeks. Therefore, he went on happily spending on his credit card for three or four months before he received a stern phone call form the bank telling him of the huge debt he’d racked up and that he’d be in serious trouble if he didn’t start paying it back right away.
Terrifying at the time, but a lesson well learned.
Do you really feel you know the mechanics of buying with a credit card?
Look at everything from the borrowing limit, to the number of months that you can borrow on 0% interest, to the dates you need to make your monthly payments by.
5. Set up a payment reminder or an automatic withdrawal from your bank
People arrange monthly repayments in different ways. I know some friends have an automatic direct debit set up that takes money straight from their bank account on payday to cover their credit card spend from the month before. Other people prefer to do it manually and will pay differing amounts each month depending on debt, income etc.
Personally, I have an alert on my phone and email systems that flashes up a reminder on the day I need to pay my credit card bill. Do whatever works for you, but make sure that you always make your payments.
6. Train yourself
As with all new behaviours, you need to train yourself into how best do them; think about learning to drive, or writing your first essay at school. Once you have your credit card and you understand the mechanisms of how it works, then being using it slowly and consciously. Make small, regular, monthly payments at first and get into the habit of paying these back on time. If oyu have a big spend, like a holiday, that you want to put on your card and pay it off over the 0% interest period then make sure that you have sufficient income over the coming months in order to do so.
Most importantly, be confident that you can handle your cash flow and not allow yourself to get stuck in debt that you can’t pay back.