Choosing the right card
A first-time credit card user or a person with a low credit score can find choosing the right credit card difficult. There are so many credit card options in the market that it makes applying for the best credit card all the more challenging. Some unsecured credit cards are easy to apply for even when the applicant has a low credit rating, but they come with a very high fee.
There are some signs, which if kept in sight, can help a person from choosing the wrong card or making gross errors while using a credit card.
Warnings about the wrong credit card
There are certain indicators that help one in choosing the best credit card suited for them. In addition, they can be taken as warnings to stay clear of certain credit cards. Some of these warning signs are:
- Costly fee – One must read the terms and conditions before making an application for a credit card. Although not unaffordable, certain credit cards have an annual fee, ideal for users with a low credit score or no banking relations with that bank. The annual fee usually is never unaffordable.
So, if such a fee is very high, then that could be an indicator. Also, credit card statement should be carefully scrutinized for items like monthly maintenance fees, application charges, activation charges, card processing fees, etc. are unnecessary and avoidable.
- High-Interest rate – When one has a low credit score or is faced with a debt on the card due to a financial crisis or such circumstances, interest charges will be levied. If one’s credit score is low, the interest rate will be high. Some interest charges are so high that one has to look at other options.
Secured credit cards have collateral of a deposit amount that is refundable. Therefore, the interest rate on such credit cards may not be so high because the risk factor is less for the lending institution. Credit unions can issue some cards, and the interest rate on such cards is not as high as from mainstream institutions and banks.
- Low Credit Limits – The cardholder’s creditworthiness determines how much credit period his card is granted. The lower the credit period, the more disadvantageous it is for the cardholder. A credit card holder can maintain a good credit history if he uses his credit card as little as possible.
On a credit card, there is an annual fee; the credit limit is the total credit limit reduced by the annual fee. So, there is a disadvantage of a limited credit period right at the beginning, even before the card is used.
- Incomplete Credit Reporting – A person’s credit rating is determined by reports from all three major credit bureaus – Equifax, Experian, and TransUnion. A person’s credit rating remains incomplete if the report from even one of the bureaus is missing. A prospective credit card issuing company may refer to the reports from any of the bureaus while researching their creditworthiness before granting a credit card or loan.
Thus, incomplete credit reporting may become inconvenient at a crucial time.
- No Upgrading – A cardholder must always aim at gradually upgrading his existing credit card by using it appropriately. If used properly, the credit scores remain high, and an upgrade to a card with better reward points and offers can be made quickly.
The best credit card to use is a secured credit card for persons with a low credit rating. In the case of a secured credit card, usually the graduation to a more premium card by keeping their existing account is possible quite easily. If the card is used responsibly, this upgrade happens, and also the cardholder gets his deposit back.
The cards that do not offer this kind of upgrade can be costly in terms of annual fees, but no offers or reward points to offset it. This can often lead to the closure of such a credit card, leading to diminished credit scores.
Read Also: National Electronic Funds Transfer
Conclusion
A credit cardholder must be vigilant about choosing the right credit card by looking for indicators that may lower his creditworthiness. In addition, one must scrutinize the credit card terms and the credit card statements to keep themselves safe from credit card red flags.
