Getting a credit card is a big financial step. A credit card gives you the flexibility and freedom to make purchases with loaned money, making it possible to buy things you otherwise couldn’t purchase. Some credit cards even offer rewards, and you can find different credit cards with different perks by searching online.
For all their benefits, credit cards are not without their risks. Some carry high interest rates or have hidden charges that may give you a nasty surprise when your monthly statement arrives. Fortunately, you can avoid bad credit loans by keeping some key facts in mind. Explore them one by one, and you’ll be ready to discover and apply for plenty of credit cards online.
Rawpixel.com / Shutterstock1. Not All Offers Are Available for First-Timers
People with limited credit histories or no previous credit cards may find it difficult to apply and qualify for many credit cards. That’s because the best credit cards actually aren’t designed for first-time cardholders.¹ The most desirable credit cards are only made available to those with good or excellent credit and longer credit histories.
You likely won’t qualify for great perks, such as sign-up bonuses and 0% interest periods when you apply for your first card, so you may not want to waste time applying for these types of offers.
2. Some Cards Are a Better Fit for Those New to Credit
You’re not completely out of luck if you’ve yet to build a credit history. Just as there are offers available for those who already have plenty of plastic in their wallets, you can find cards designed specifically for those who want to build credit. Student credit cards are usually geared toward first-timers and have relaxed credit history qualifications and low credit limits.
Secured credit cards can provide another route toward your first card or obtaining a credit card despite bad credit. With this type of agreement, you make a cash deposit at a financial institution and get a line of credit equal to the amount.
3. Rewards Cards May Have Inconvenient Terms
If you have an established credit history, rewards credit cards give you the ability to earn points you can redeem for discounts and other perks. There are cash back cards, gas cards that allow you to pay less at the pump, travel cards that earn airline miles and general cards that let you cash in points for everything from restaurant gift cards to electronics.
Before applying for any rewards card, make sure you understand how you earn points and what restrictions are in place. Sometimes, the redemption process is complicated or points expire, making it hard to use those rewards.
4. Transferring a Balance Could Lead to Big Savings
If you previously signed up for bad credit loans, certain types of credit cards may be advantageous for you.² Balance transfer credit cards give you the ability to move the balance of a card with a high interest rate to a card with a lower one, potentially reducing your monthly payment.
Be aware that some balance transfer cards offer promotional rates and the interest may go up in the future. For example, a card may offer you a 5% APR for 12 months but then revert to 10% or more.
5. Applying for a Credit Card Will Likely Affect Your Score
Your credit score will be affected the second you apply for a credit card. Even if your application is denied and you don’t qualify for a card, your credit score will still see a small impact. That’s because applying for a credit card adds an enquiry to your credit history, which shows that a lender was considering lending you money. That hard enquiry will stay on your credit report for five years and will affect your score for a few months.³
6. Credit Cards Can Raise Your Score When Used Responsibly
Getting a credit card increases your credit mix and adds a new line of credit to your report. This can help to improve your score by showing a better mix of types of credit, as well as more available credit. When you make on-time payments, your credit score can increase even more.
The credit reporting system places more weight on recent history than older activity. As a result, paying your credit card on time can gradually offset any mistakes you made in the past to benefit your credit standing.
7. You Can Check Interest Rates and Fees Before You Apply
Under Australian credit laws, all credit card companies must provide you with key facts on any paper or online application.⁴ This area must tell you the minimum repayment amount or how the company calculates it and the interest rate for purchases and cash advances.
If you receive a special rate for balance transfers or an introductory promotional rate, the creditor must spell out the terms of the offer. In addition, it must disclose any annual and late payment fees. Read this information carefully before you complete your application, so you know what you’re committing to.
8. You Can’t Be Charged an Over-Limit Fee Unless You Agree
Australian law prevents creditors from assessing over-limit fees on any cards issued after 1 July 2012. The exception is if you opt in and agree to the charge. Credit card companies often include the opt-in language in the initial application. This means, if you sign the form without reading carefully, you may agree to the charge without knowing. If you accidentally opted in or don’t know if you did, contact the credit card company. They must allow you to opt out, so you can avoid costly fees.
9. Making More Than the Minimum Payment Is Wise
As you check out offers, keep the minimum payment in perspective. You may look at a card and think you can easily afford to pay the minimum amount, but making the lowest payment possible can be a big mistake. Because of how interest compounds, you’ll ultimately pay more for longer if you only pay what the credit card company requires.
Moneysmart offers a calculator that can show you how long it will take to pay off a card at the minimum rate. Use it before you apply to get a clear picture of what payments you realistically should make, as opposed to the minimum amount.⁵
10. Your Credit Line Isn’t Fixed
After 1 January 2019, Australian credit card companies can only give you a line of credit that would allow you to completely pay off your debt in three years based on your current income. As a result, you may be disappointed by the initial credit line offered.
The good news is that over time you can request an increase to your credit line by contacting the credit card company. This way you can build your buying power as your income increases due to a new job, promotion or other favourable financial gain.
11. Retailer Credit Cards May Offer Additional Advantages
Many retail stores provide credit cards and will offer them to you at checkout. Often, you’ll get a discount the first time you use your new card, so it can be a smart move to apply for one if you’re making a major purchase. Some retail store credit cards offer other perks, such as rewards points you can redeem for merchandise.
Although retail cards can be advantageous, you still need to read the disclosures. This may mean you need to step away from the checkout, but it’s more than worth the time to know the terms of the agreement.
12. You Need to Shop Around and Compare Different Credit Cards
Whether you’re applying for your very first or your 10th credit card, there’s one thing everyone should do. You need to search online, consider different credit cards and compare what they offer. No two credit cards are the same, and neither are fees, interest rates and rewards or perks. That’s why it’s so important to compare different credit cards.
Look at the requirements for credit score and income, compare annual fees and look at current interest rates before applying. Make a chart for yourself, so you can easily see features side by side as you determine which card is right for you.