Just because a wallet contains many card slots, doesn't mean one has to fill them all. When you've finally "adulted" after some time and are beginning to earn a stable income, you may be considering applying for a credit card.
How do you know what to look for when selecting a credit card to sign up for? Other than having a cool card design to look good when footing the bill at the restaurant, here are 3 questions to ask yourself when you apply.
1. "What are the card benefits?"
Practically all credit cards will cost you nothing when applying, and most of them will waive the membership fee in your first year or two of owning the card. Still, you'll need to read the terms and conditions thoroughly to find out how much annual fees you may end up incurring if you don't manage to hit a certain spending threshold to automatically waive those fees, or if you simply forgot to ask for a waiver.
So don't simply apply for a card because the ad claims that it's the perfect card for dining out/traveling/clubbing/shopping online, or because you felt pressured by that pushy credit card roadshow promoter. Read the terms and conditions yourself and ask if you're unsure about anything.
Frequent flyer miles may sound like a wonderful thing to have, but if you don't travel frequently for work, then there's not much you can actually claim. One of the most useful things I find about credit cards are the cash back - since you are going to use the card, why not get some free money out of it.
2. "Can I even qualify for the benefits?"
Adding on to the above points on card benefits, most of them seems too good to be true. And that's because most of them are. Most of the time, there are frequent terms attached to the benefits. For example, the card might be offering instant 5% cash rebates on your shopping ...BUT only if you spend above $1,500 a month on the card.
Based on your spending habits, you'll be able to know whether you can benefit from the credit card you'll looking to apply for. If you only spend up to $800 a month, there's no point getting a card that requires you to spend above $1,500 to reap its benefits.
One tip is to only allocate one main credit card for all your spending. Choose a card that can reward you the largest amount of cash back, and use that as your main credit card.
Obviously, the banks are not going to advertise what the spending requirements are in their promotional materials, so some digging through the card's terms and conditions PDF document will be required.
3. " How can the credit limit and balance transfer benefit me?"
I can't stress how important it is to know what your credit card limit is so you don't end up standing red-faced at the checkout counter of H&M with 15 people in the queue gawking at you while payment is being repeatedly denied by your card.
If you've just started working for about a year or two, a good credit limit to start off with is $3,000-$5,000. This is so you don't cultivate a habit of spending beyond your means.
It will also help to ask the bank how much a balance transfer on your card will cost. Depending on the interest rate, if ever you find yourself in debt and unable to pay off a credit card bill, you might want to pay off the bill using a card with a lower interest rate rather than incurring the penalty of not meeting the minimum payment.
Be warned, you could end up having to pay other penalties, or be subject to a higher interest rate after a period of time so do check with the bank on this clearly.