Everybody goes through that stage in life where they are credit card newbies. This is also the time when you are most ambitious about your credit status and you do not want to get anything to ruin your credit report. Well, there is nothing strange in making such resolutions, if anything, bad credit reports never pay off.
The first mystery credit card newbies get into is landing a `think file`. This simply means that you do not have enough information to warrant any credit score because you do not have any credit score.
This sounds an empty loop where you do not have credit score because you´ve never had one before but trust me, it takes off. So here´s what you should do:
- Apply for a secured card
You may think that this beats the logic behind ´credit card´, but it is the right way to start off. A ´secured card´ has no much difference from a ´regular’ card only that you are required to deposit some funds which serves as a guarantee that you will repay your credit. Your credit limit may therefore be the value of your deposit, or a percentage of it.
There are a number of reasons as to why a secured credit card is different from a debit card. One, banks do not file reports concerning your debit card with credit bureaus. With credit cards, whether secure or not, your provider has an obligation to report to credit bureaus and your payment history will be publicly accessed.
You should never expect your security deposit to be deducted every time you charge your credit card. In fact, once your security deposit is deducted, it means that you are already having bad repayment history. So, as a newbie, the security deposit should act as a reference point and you should be very careful not to let your credit provider deduct it.
- Charge what you can afford
It is very important to check your expenses when you bill from a credit card. There is a likelihood that you can get extravagant once your credit limit is approved and be warned that this may impact negatively on your credit.
As a newbie, your aim should be to demonstrate to your credit lenders that you can manage debt so, charge what you can pay off at once and at the end of every month. If your credit limit is $500, you do not have to spend $500 every month if you are not comfortable with it.
This does not mean either that you sit on it. It defeats the purpose of the credit card and you will not be demonstrating any responsibility with your debt. So, do not be too careful to an extent that by the end of the month you have nothing to pay. Your provider may revise your credit status and rule you unfit for credit.
So, you wanted a credit card, use it but remember to check your expenses.
- Make timely repayment
Remember your aim here is to impress your credit provider and doubly reach a higher credit limit. So, make timely payment. It cannot be any simpler than that.
As a newbie, a single late repayment can significantly ruin your credit status.
- Keep a single account
You may meet a friend who boasts of two or three credit accounts and you might be tempted to apply for another credit account with another credit provider, please don’t.
There is no point in having two or three credit accounts. Every time you apply for a credit and repay in time, your credit score gains a mark and there is no point in changing accounts already especially now that you have not yet demonstrated your debt management.
If anything, direct all your focus to nurturing a good credit score.
- Monitor your progress
It is good to pay close attention to the details of your credit score and report. So, after six months of timely payment, check your credit report and score. Watch for any negative points
This will help you improve your score by knowing precisely what you need to work on. For example, if you went way above your budget, this is the time you realize it and correct that.
- Go unsecured
In about six months of your application for a secured credit card and early repayment of your debt, your credit card providers should have been convinced that you can manage your finances properly and you can be trusted so, go unsecured.
Regular credit cards, (unsecure) frees you from the security deposit obligation, comes with a higher credit limit and other benefits which include reward points. Give your provider a call and suggest this upgrade. Usually they will review your credit history before making the upgrade but this is what you´ve been waiting for right?
Establishing good credit report as a newbie deserves your patience and discipline and deserves trust. Do not be discouraged when your provider first gives you a very low credit limit and by ´low´, I mean ´below your expectations´. In any way, high credit limit is not healthy for somebody seeking to build their credit status as it comes with a number of risks and when you are offered a chance to pick your credit limit, here are three reasons why you should settle for the least the provider offers;
You risk late repayment
Being a credit card newbie is a bit challenging especially if you have a different perception of credit. Anyway, you should avoid higher credit limit at the beginning of your credit card life because chances for late repayment are obnoxiously high.
Here´s how it works, you get high limit, you are tempted to spend big and you are just not sure how reliable your revenue stream is so guess what, end month comes and you fail to pay your credit in full. Once you have started carrying forward your credit, don’t expect anything good in your report
You will go for multiple accounts
There is a high probability that when your credit expectations are so high, you will go for multiple accounts. This is because you want to satisfy your urge for high credit limit. Keep in mind that this is a bad idea and you may hurt your credit status while at its toddler stage.
You risk dumping one of your accounts
One disadvantage of multiple credit accounts is the risk of neglecting one of them. Well, the implications of neglecting a credit account is a topic for another day so, stick around to learn that (that is if you are planning to neglect one)
With these seven tips, I am certain that you will earn a good credit score and higher credit limit as a newbie.