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Are you planning to get your first credit card? You might have questions about how it works.

Applying for and using credit cards for the first time is overwhelming. If you lack knowledge about it, you might end up in a financial sinkhole.

Learn the basics of using credit cards. Understand how it works and the terms used through this beginner’s guide.

How Credit Cards Work

A credit card needs a credit account with a bank. Every use of the card means you’re borrowing money from the issuing bank.

Purchase goods or services thru credit cards with any merchant. Make sure they accept credit cards for the said transaction.

Moreover, credit cards have the maximum amount you can take at one time (credit limit). You cannot exceed your spending more than your credit limit.

After every purchase, the amount you have left to borrow is your available credit. Paying on time allows you to have more available credit to borrow again.

Remember, you have to pay the amount you owe to the bank (balance).

The more you use the credit card, the more points, rebates, and promos you can get. Some earned points have expirations while others don’t. Some banks let you can use the points to pay your credit card bills.

To simplify, use the credit card to pay the merchant. The bank will pay for your purchase, so you have credit from the bank. Before your billing cycle, you will need to pay the bank to avoid late charges.

Important Credit Card Terms

Before applying for a credit card, make sure you know the following credit card terms.

• Credit Card –The physical card you use to purchase through a credit account.
• Unsecured Credit Card –A cardholder is not required to have a security deposit. Unsecured credit card is the most common.
• Secured Credit Card –A cardholder is required to present a security deposit when opening an account. The amount in your bank account will serve as your credit limit.
• Cash Advance –Get cash with the use of a credit card. It usually has higher APRs and accumulates interest immediately. Simply, a credit card cash advance is a fast cash loan you can get at any time without having to apply for a loan in your bank. It is similar to the services of cash mart singapore or chinatown money lender.
• Credit Limit –The maximum balance you have on your credit card. The credit card limit is different from the cash advances limit. Your card has a credit limit of Php 20,000, while your cash advance limit is up to Php 10,000.
• Available credit –Available credit is the difference between credit card limit and balance on a card. If you have a Php13,000 balance on a card with a credit limit of Php 20,000, your available credit is Php 7,000.
• Revolving Line of Credit –A line of credit lets you borrow from or up to the limit. Always keep your account open.
• Statement Balance – Statement balance indicates the balance of the credit card on your most recent statement closing date. If you pay in full every billing cycle, interest charges are avoidable.
• Minimum Payment –The minimum payment is the lowest amount you need to pay on your credit card. Settle it by the due date to avoid a late fee.
• APR –Annual Percentage Rate means the annual cost of borrowing money.
• Credit Score –A credit score is a substantial number that rates your creditworthiness. It also reflects your likeliness to repay what you borrow.

Know these terms before taking out a credit card. It keeps you one step ahead of financial trouble. Also, it is like walking on a lighted path in a forest.

5 Tips on Proper Use Of Credit Cards

Now you know the terms, next is how you should use the credit cards properly.

1. Set a Budget –Use your credit card wisely. Make purchases and earn rewards on things you can afford. Be realistic about the amount you can spend and pay off at the end of the month. Use the 50/30/20 budget. Spend 50% of your take-home pay on necessities like groceries and bills. Use 30% or less on items you want to buy but don’t need. Save the remaining 20% or use it to pay off your debts. Do this to keep your credit card spending in line with your income. Don’t forget to prioritize your savings.
2. Spend Below the Credit Card Limit –Apply a credit utilization ratio of 30% or less in your spending to boost your credit score significantly. On the other hand, exceeding the 30% threshold drags your score down.  If you have credit cards with a collective limit of Php 50,000, make it a point not to have more than Php 15,000 in charges at a single point in time.
3. Pay in Full –Pay your full statement balance every month. Carrying out a balance starts accruing interest charges. It will compound every day until you eliminate your debt.
4. Check Statement Regularly –The credit card issuer sends a statement of your transactions from the previous billing cycle every month. Always read your billing even if you have scheduled your monthly payment. Review your account statement and check for errors and unauthorized charges. Report any discrepancies to your credit card issuer immediately.
5. Create an Online Account – Rr download the card’s mobile app, if there’s any. Check your transactions in real-time and spot errors faster.
6. Redeem Rewards –If you have a rewards credit card, understand the rewards program. Spend according to the categories that earn more rewards. It maximizes your cashback and points.  Once you earn rewards, redeem them. Remember, it has an expiration date. It’s better to use them before you lose them. Check the expiration policy at the card’s fine print.

Be guided with these five simple tips. It helps you build a stable financial future while establishing an excellent credit score.

Best Benefits from First Credit Cards

Applying for credit cards for the first time comes with perks. New users must look for the following features.

• No Annual Fee –Typically, the first credit card is the one you keep open forever. It helps you extend the age of your credit history with each passing month. Pick a credit card with no annual fees. This way, you don’t have to pay every year just to keep it open.
• Low-Security Deposit – A secured card requires collateral to open an account. Look for a card that offers an exchange deposit of Php 10,000 or less. Keep in mind that opening credit cards do not need to empty your bank account.
• Rewards –Rewards aren’t a make or break feature. But scoring rewards for your first credit card is not bad at all. Choose a credit card that makes you earn while you spend.

Credit cards do not mean you are bad at your financial management. Having one is way better in building up your credit score.

Nowadays, taking out a credit card is necessary. It helps you buy the things you need even though you don’t have the budget now. Also, it aids a brighter financial future. Avoid building a mountain of debt. Pay your dues diligently. Use your first credit card the right way by following this beginner’s guide.