Getting a credit card probably sounds like a pretty tempting plan, especially if you know what it’s like to be broke. But like working, voting or looking after a small child, it’s something you should definitely approach with care and caution. If you do it responsibly, it can be a pretty handy way to manage your money and possibly boost your credit rating, which will help if you want to borrow money down the track. However, if you’re irresponsible about it, things can get real pretty quickly.
Here are a few questions you might want to ask yourself when deciding if you’re ready for credit card…
There are quite a few potential benefits of having one. Some of them offer reward points systems, including frequent flyers and complimentary travel insurance. There’s also the potential of building your credit rating, which could help you to borrow money later down the track. Credit cards could also be good for financial emergencies, say if your car breaks down or you don’t want to be awkwardly transferring money from one account to another in front of your date.
If you’re not great at managing your money, a credit card can be a bit of a liability, pushing that temptation to indiscriminately blow your cash on stuff you may think you really need. The other thing is the interest rates, which can be pretty high, particularly if you’re going to struggle with repayments. If you need funds quickly for something specific, you’re might be better off getting a personal loan instead.
The stakes are actually kinda high on this one, higher than people think. If you default on a repayment (aka fail to pay what you owe by the due date) of $150 or more, that will impact on your credit rating for the next five years, which could prevent you from acquiring a personal loan or mortgage or other types of activities. You wouldn’t want to limit your future financial options just because you blew a bunch of money on some sneakers you didn’t need and a few wild nights out.
On the flipside, a credit card can really help you out. If you want to borrow money from a bank, you’re gonna need to show that you’re financially reliable. One way of proving this is to actively use your credit card and pay off the debts on time, every month. You could just set up a direct debit system to pay your credit card on time by automatically taking the money from your everyday account, so you look like you’re really on the ball with your finances. Then if you need to borrow to buy a car or apply for a mortgage, you’ll be able to prove to the bank that you’re a responsible type.