Thinking of getting your very first credit card? Before signing up and getting in the habit of making purchases on credit, ask yourself these 5 questions…
Am I getting a credit card for the right reasons?
First thing’s first, ask yourself why you’re thinking of getting a credit card. Are you getting one to build your credit rating, earn rewards or protect large purchases? If so, it sounds like a credit card could be a wise decision providing you can afford to repay the money you borrow. However, if you’re thinking of getting a credit card so you can live beyond your means or make large impulse purchases, it might not be such a good idea…
Am I trying to fund a lifestyle I can’t afford?
If used responsibly, a credit card can be a great way to manage your finances but if you’re using it to make purchases you can’t pay back in full and on time, it’s probably not going to end well.
A credit card might seem like a good way to make big purchases you can’t quite afford, but if you splurge on your credit card and then face a sudden unexpected expense, you may struggle to repay the money you borrowed on time. You could land yourself in a vicious cycle of borrowing that can take years to get out of.
Do my monthly expenses consistently exceed my income?
If your monthly expenses exceed your income, a credit card is unlikely to resolve the issue. A credit card may make it easier for you to fund your current expenses, but if you get in a habit of funding your purchases with money you don’t have, you’ll wind up with a much greater problem a few months or years from now.
Instead, look for ways to boost your income. I know that sounds really obvious but a lot of people dismiss this idea straight away due a lack of confidence.
Consider the following options:
- Can you ask for a pay rise at work?
- Can you switch jobs for a higher salary?
- Can you get a part time job or a side hustle to increase the amount that comes in?
Also look for ways to temporarily slash your spending so you can gradually save an emergency fund that will protect you from any surprise expenses in the future.
Will I be able to make the necessary repayments in full on time?
By making the necessary repayments in full and on time each month, you can often improve your credit rating and increase your chances of securing a mortgage if you need one. However, one missed or late payment can seriously damage your credit score and make it harder for you to secure other types of credit in the future. Not only that, it can also see you paying interest on the money you owe. This credit card calculator can help you determine how much interest you’ll pay and how long it will take to repay the money in full.
Do I understand the card’s terms and conditions?
Do you know how much interest you’ll be charged? Will you be charged fees for late payments? Do you know the difference between ‘APR’ and ‘Representative APR’? Take a look at this guide by the Money Advice Service for more info on applying for a credit card and understanding the terms.
Some credit cards come with benefits such as free travel insurance, air miles or cashback. Don’t let these benefits cloud your judgement or encourage you to sign up for a bad deal or something you don’t really need. Ask yourself whether you’ll actually make use of these benefits. If not, it may be worth getting a different card or preferably not getting one at all.
