Most people today are now using credit cards for easy transactions when buying. Likewise, a good credit card account standing gives you leverage when applying for a loan or credit line when financial institutions or lending institution reviews your credit history, therefore giving you high credit rating.
Credit utilization and the use and payment of credit card responsibly go a long way when applying for loans. The number of Filipinos who have been using credit cards is increasing. However, some people need help grasping the concept of credit cards, especially those getting first credit card.
Let us discuss what credit cards are for and how we can use them wisely.
What is a Credit Card?
A credit card utilization is a form of “buy now, pay later” mode of payment. It is mostly used when you have to make a big purchase but you still don’t have the full amount needed for the purchase. It can also be used for cash advances. Where does the money come from?
Using a credit card, whether it is a personal credit card or a business credit card, is like borrowing money from the bank – of course, you need to pay them back every month with the prescribed minimum amount and with interest charges tucked in.
One must also take note that when a credit card is used abroad for purchases, say when you are in an out of the country trip, foreign transaction fees different from the usual local fees, may be charged. Most often than not, foreign transaction fees are higher abroad than here in the country.
An important factor to consider in your credit card journey is that banks charge an annual fee. If you are not able to make minimum payments on time or if your remaining balance does not suffice, late fees will we charged to you, especially with purchases using foreign currency.
While a grace period is given card holders, it is always helpful to take not of the cycle of your credit card bills so you do not miss any payments.
Debit Card vs. Credit Card
Debit and credit cards look similar and both provide users an ease in transactions, but they have one main difference: Debit cards use your money in your bank account like your savings account, to pay for your purchases, while credit cards let you borrow money from the credit card issuer.
You can also do balance transfers. Usually, when an amount is transferred from one savings account to another under the same banking system, no fees are charged. However, transferring or paying money from your savings account to another bank account under a different banking system will incur you minimal charges.
So the important thing to take note of is to ensure that you save money regularly and make sure that there is enough emergency fund in your main account for regular transactions that you need to pay monthly.
Debit card is similar to having cash on hand and you are charged right away while a credit card account can allow monthly payments or installments where you earn rewards with every credit activity and pay interest in the process.
Credit card has a credit limit, while a debit card is dependent on the actual balance of your account. You can make cash withdrawals with both debit cards and credit cards.
Regardless which card you will use in making purchases, a major factor to consider in credit card ownership is credit utilization and spending habits.
Being Credit Card Ready
Becoming credit card ready involves a combination of financial awareness, responsible spending habits, and proactive management.
By following our guide, you can confidently navigate the world of credit cards, leverage their benefits, maintain a good or excellent credit standing, and safeguard your financial well-being. Remember, being credit card ready is not just about having a card; it’s about using it wisely to enhance your financial stability, build credit standing, and help you achieve your long-term financial goals.
Assess Your Financial Situation
Begin by conducting a thorough assessment of your financial situation. Make sure that the banking institution has an excellent track record for issuing secured credit cards. Understand your income, expenses, and savings goals.
This foundational step will provide clarity on how much credit you can responsibly handle without compromising your financial stability.
Educate Yourself Continuously
Stay informed about credit card best practices, consumer rights, and any changes in credit card regulations. Continuous education empowers you to make informed financial decisions.
How to Use A Credit Card
Choosing the right credit card
Many financial institutions offer different inclusions and restrictions on their credit cards. When planning to apply for a credit card, you should know the differences between the offers of each bank to know which is the best choice for you and your spending habits.
Remember that a credit card is a financial tool that should help you in your important purchases, financial needs, and personal loans. It should not in any way place you in a financial distress.
Here’s what you should look for:
Credit limits
Usually, for starters, the available credit limit is around 15,000 to 20,000 pesos. If you’re planning to use a single credit card for appliances, a bank with higher credit limit could be more appropriate for you. Other than the credit limits and before handing in your credit card application, be also wary of billing cycles, repayment strategy, late payment charges, annual fees, and penalty fees, as some banks charge higher than the others.
Benefits and rewards
Every credit card issuer offers different sets of rewards for their credit cards – you can earn points for other transactions like travel, gas, grocery, or shopping or you can receive discounts from stores they are affiliated with.
Learn what they can offer so you know which bank has credit card rewards that match your interests.
Interest rates
Of course, when it comes to interest rates, choose the bank that can offer you the lowest interest rate.
Be wary of your Billing Cycle: Pay your credit card bill every month
Being financially responsible with on-time payments is essential because it raises your credit scores with credit card issuers. The credit score is the basis of your “creditworthiness” – getting a higher credit rating is a good sign and the more likely you’ll be approved for loans and mortgages.
Be mindful of your credit card limit
Always keep in mind when using a credit card that you are using borrowed money that you will eventually give back. So always practice managing you finances. Only buy enough that you know you can pay back.
Benefits of Using A Credit Card
Convenience
With the rise of online payments, most people nowadays prefer to not pay through cash when buying new purchases from a store.
Instead, they use online banking apps, debit cards, or credit cards as a mode of payment. Choosing to pay using those modes creates an easy transaction when buying.
Buy now, pay later
Credit cards work in way that give you the ability to buy what you immediately need even if you do not have the full amount ready yet and just pay the amount at a later time. This is probably one of the main reasons why people include credit cards, even just a basic card, in their financial journey. This is specially true for people with single independent income to get by with.
Most credit cards give you two options for payment – either you can pay the full amount in a month or pay the minimum required amount per month, although, in the latter option, you are going to be charged interest.
Accepted almost anywhere
Credit cards are accepted almost everywhere as a mode of payment, whether here in the country or abroad. You won’t have a hard time finding a store you can use your credit, this is one of the reasons why it is worth getting.
Rewards
Most banks offer extra rewards with their credit cards like discounts and points that you can earn and use in the future for travel or shopping.
Having credit history
When getting a credit card, all your expenses are going to be recorded. Your credit card payments are also tracked- this is your credit history, where your credit score is going to be based.
If you always pay on time, the better your credit score would be.
With a good credit score, you have a higher chance to get accepted when applying for loans and mortgages.
Sometimes, banks also give rewards and benefits to people who have a good tracking record like a lower interest rate and a credit limit increase.
Guide to a Smart Credit Card Usage
Having a credit card could give you lots of benefits in the long run, but how can you make the most out of using a credit card? It is obvious that one of the answers here is to use your credit card more, but there are also limits that should be established when using your credit card.
How can you be a responsible credit card holder? Here are some tips for better credit card usage.
Spend what you can only afford
Credit cards help us buy something immediately even when we still don’t have the money. Even so, we should be mindful of the credit limit given by the bank. Buying something that you can’t pay back could cause you to have debt, which is something that you should avoid. Always be mindful of credit card due dates.
Use your credit card wisely and make sure that you are not using an unsecured card. Only buy what you need and never splurge. Always remember that this is just borrowed money that you eventually have to pay back.
Don’t max out your credit limit
Every credit card has a credit limit, meaning there is a limit to how much you can borrow from the bank. When spending, it is best to always check how much available credit is left on your card. As discussed in the previous section, you should only buy the amount you know that you can pay back.
It is advised that you keep your credit utilization ratio from 1o to 30% to avoid having to pay credit card debt.
Pay off your credit card balance every month
Your payment history matters, as this is the basis of having a good credit score. To avoid paying interest and prevent your debt from stacking up, you should always try to pay off your balance every month on or before the due date.
If you can’t pay yet for the full amount, you can pay at least the minimum payment that you’re required to pay every month. So, as much as possible, avoid late fees.
Establishing a positive credit history is vital for credit card readiness. Pay bills on time, manage existing debts, and avoid late payments. A strong credit history enhances your creditworthiness and opens the door to better credit card options.
Use your credit card for budgeting
Since every purchase you make using your credit card is tracked, you can use it as a budgeting tool. You can do this only when you know how to handle your credit cards responsibly by paying on time and managing your use.
Use your credit card responsibly by applying these smart tips.
Regularly Check Your Credit Report
Obtain your free credit report annually from major credit bureaus and review it for accuracy. Correct any discrepancies and stay vigilant about your credit health.
Camella Online Payments
Camella, the largest homebuilder in the country, is one of the companies that offer online payments. When buying a home, it could be a hassle to pay on-site because of long lines and queues.
Camella offers various modes of payment that you can choose from, like credit and debit cards, e-wallet payments, and over-the-counter payments.
Pay your purchases, loans, and mortgages from the convenience of your home.
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