Got your first credit card? Now use it to build your credit score

Ensure timely payments of your monthly dues. This has a significant impact on your credit score, affecting your ability to obtain loans in the future. For those who have just got their first credit card, at the start of their earning careers, it can be a good tool to build a good credit score. But if you misuse it, there are repercussions

Have you been thinking about getting your first credit card? While you may be excited about its benefits, you should keep certain things in mind when you use this product as this will be your first step in utilising credit and will have a bearing on gaining easy access to future credit. Lenders consider your credit report and credit score before extending credit. The credit score is one of the important factors which determine your creditworthiness. A credit score ranges from 300 to 900, and anything above 750 is generally considered a good score.

Got a savings account? Now, ask your bank for a card
The millennial generation today realises the importance of establishing a positive credit footprint, and prudent credit planning can allow them to take advantage of lower interest rates on large-ticket loans like home loans in the long run. Credit cards are a great way to help you get started in this way. It is always a good idea to take out a credit card at the beginning of your professional career as it allows you to start your credit journey early and build a strong credit score over time. One of the easiest ways to obtain a credit card for the first-time millennial borrower or anyone else who wants a credit card is to go to the bank where you have a savings or salary account. In cases where the bank does not offer credit card products, they can turn to other issuing banks for assistance.

Credit cards help you track spending
With a credit card, you have convenience and control, and sometimes you can save if you use it wisely. It kicks off an individual's financial discipline journey and other benefits could include reward points, discounts, cashbacks, etc. Our spending is almost instantly alerted to us, which lets us keep track of our finances. Using paper money can make it hard to track spending patterns, although bank statements can help.

The downside to using a credit card is the temptation to overspend, given that the credit limit allowed is usually quite generous. This could lead you into a debt trap. It is important that as consumers we understand the basics of how credit cards work, as well as cultivate the discipline to manage our finances so that we can use credit cards effectively and avoid any financial pitfalls.

Choose the appropriate card
Research carefully and identify the card that suits your income and needs among the plethora of options available today. If you're choosing a card for fuel, consider the card that has co-branding with a fuel company.

Read the fine print. Review the terms and limits regarding rewards, interest rates, late fee for late or missed payments, annual fees, benefits, and credit limit offered. Reading the late payment terms carefully is important since this is one of the main areas people ignore, leading to inconveniences over time. 

Ensure timely repayments
This one factor can have a significant impact on your credit score. Check the due date for the monthly bill and set a reminder on your phone or automate payments to ensure you never miss a payment deadline. Credit card companies tend to levy heavy interest rates if you miss the deadline.

Pay the full amount due
Just paying the minimum amount due may not impact your credit history as it is not considered as a default. It does, however, attract interest and other charges, which may increase the total outstanding balance. The key is to maintain liquidity to make sure you always clear the full amount each billing cycle.

Check your bill regularly
Take a careful look at your bill to ensure you are aware of your itemised expenses as you may find there are purchases you can do without. It also allows you to check your statement for discrepancies and address them with your card issuer.

Spend responsibly
It is very easy to get swept away by the convenience a credit card offers, especially during the festive season when sales are on and deals are plentiful. Be cautious and only buy what you need.

Avoid opening numerous credit card accounts at once
Keeping track of repayments is difficult when there are multiple active accounts. Furthermore, outstanding credit lines can make you appear riskier to lenders.

In pursuit of credit, financial discipline is the key because your credit history will automatically be good, which will give credit grantors the confidence to lend to you as your credit needs change over time.

Source: Publication: moneycontrol-com ,30th Sep,2022