Five tips for credit card first timers

Credit cards are great for earning points and building a credit history, and they don’t have to cost the earth in fees and interest. But how do they work? What are the benefits—and the costs—associated with putting it on the plastic?

 2.5 minutes

1. Fees and interest

Annual fees will vary depending on the type of credit card—some cards offer zero annual fees. There are several ways of reducing total fees and the interest you pay. Most importantly, pay your monthly balance by the due date, to avoid late payment fees on your account. Note that interest is calculated on your average daily balance over the month—not on the final amount outstanding at the end of the month. Clear your debt each month and you should be able to keep fees on your credit card as low as those on your average debit account.

2. Rates

Interest rates can vary substantially from card to card. It pays to look out for specials—some lenders offer attractive deals starting as low as zero per cent for balance transfers from other institutions. If you have good assets, a stable income, and a strong credit history, you’ll be in the best position to secure a good deal on your credit card.

3. Credit limit

Assuming this is your very first loan, you’ll probably start small, and in the process you’ll be building a credit history. As your credit record grows, lending institutions are more likely to entrust you with larger amounts. This is why starting and maintaining a good, strong credit history is important.

4. Paying back each month

You can put all your expenses on your card—rent, bills, food and other purchases. It’s a flexible line of credit up to the limit you’ve set with your bank. You keep on top of payments by paying the minimum requested payment per month to keep your card ticking along. The wise credit card consumer pays off their balance each month, to avoid extra charges.

5. Other benefits such as earning rewards

There are many rewards programs out there, from frequent flyer points and travel clubs to tax reductions and product and service discounts. Basically, you earn points for using your credit card. If you use it for all your expenses, you can earn points without breaking a sweat. Remember that there are usually conditions attached—your points may need to be used within a set timeframe, for example, or you may lose them if you fall behind on monthly payments.

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