Of all the financial tools, it seems the credit card has the most people happy to use it, but also those who are “afraid” of it. The former uses plastic money because it’s convenient and can be an excellent emergency fund when you don’t have enough cash. On the other hand, those with poor financial habits don’t look favorably on credit cards because of relatively high interest rates and costs.
The latter is true because credit cards are a short-term type of loan, so they usually come with high interest rates. However, this lending method has higher costs when compared to personal loans with a longer repayment period. But that doesn’t necessarily make them a bad choice since you’re free to shop around for favorable deals.
Credit cards can be quite helpful if used with caution. They can help you build and improve your credit history. These financial tools from reputable issuers like banks and companies that offer the best Mastercard also come with numerous perks. These can be bonus points, additional insurance, no annual fee, and even a certain percentage of cashback.
If all that sounds tempting, you might want to get a Mastercard. Think carefully, because it’s a big decision after all. If you’re confident in your spending habits and behave responsibly towards your financial obligations, you can enjoy many benefits of these financial tools. So here’s what you should know when choosing one of these for your needs.
Know Your Spending Habits
The first step before getting this payment is to assess whether you need it. It’s not a matter of prestige but a financial tool that comes in handy when you need money you don’t currently have. Also, having this payment means using it only occasionally isn’t a smart move. But it’s not good either if you reach the limit every month.
In the first case, it can become an inactive account that’ll reflect on your credit score. In the second case, you can incur high costs, and in the case of rolling off the balance, you may end up paying a high interest rate. That can cause additional difficulties in repaying this debt, and there comes trouble.
So, assess your spending habits and financial goals carefully. Is your current financial situation such that you will carry a balance, or can you regularly pay it off in full each month? In the first case, consider whether a Mastercard is a good choice. If yes, look for the one with a low interest rate.
In case you have a good history of not being late in paying, and your financial situation is good (you are not too burdened with debts), you can consider a card with rewards or cashback programs that align with your preferences. These could be travel points or cash rebates. Certainly, do not neglect the interest in this case either. You can get pretty good deals if your rating is 670 or more.
Check Your Credit Score
Your credit score is your financial ID. Lenders and card issuers look at you through it because this parameter says a lot about you as a consumer, but also as a potential borrower. Of course, the better it is, the better your position to get more favorable lending terms.
In general, your score should be at least good (around 670). Some lenders may consider your application even if this parameter is somewhat lower, but lending terms will be somewhat stricter. Remember that some companies issue Mastercards with unique benefits for those with high creditworthiness.
You can find out this parameter by simply checking with a credit agency, and you can get a free report once a year. That way, you’ll know your starting position before applying for a credit card. Also, it’s an ideal chance to detect possible irregularities and errors in your annual report.
If your creditworthiness isn’t great, it’s essential to find out what makes it bad and give yourself time to fix it before applying for a Mastercard. Maybe it’s some old, inactive accounts, late payments, or too many hard inquiries lately (applying for more loans at once). In any case, fix those issues and only then apply for the plastic money.
Get Into Cards’ Features
Once you know your position as an applicant, you can search for suitable Mastercards for your needs. There are several types, and based on their purpose, issuers determine the interest rates, fees, and rewards you can get by using them.
If you have a short, bad, or no credit history, you can apply for a card to help you improve that parameter. When you’re just starting to build your history, you can get a student card. You may think it’s unnecessary while you’re still studying, but the sooner you start building a good credit history, you’ll be in a better position once you want to buy a car, get a loan, or apply for unsecured credit cards.
Student cards come with no annual fees. The issuer might ask for an authorized user (maybe a parent) if you’re under 21. If you’re older, you need proof of income or collateral. When choosing these cards, make sure they report all your payments to three credit agencies; that way, you provenly build or boost your credit score.
If you have a short credit history or poor credit score and aren’t eligible for a student card, a secured card will do. It requires a deposit, which you get back after the end of card use. It serves the issuer as a guarantee that you’ll behave responsibly towards your financial obligations. So they might keep it if you don’t pay your bills on time.
Using your deposit to cover your debt is the last option for issuers. They need proof of your income to ensure you can pay off a balance. The limit on these cards is usually a bit lower than usual, but that’s actually good for you, as you can’t overspend and risk more financial trouble.
The point of this financial tool is to use it and settle the balance debt as soon as possible. Every payment is recorded and reported to credit bureaus, and that’s the first thing to look out for when choosing this card type. That’s the only way for your credit score to go up.
Balance Transfer or Low-Interest Card
You can apply for a balance transfer Mastercard to consolidate your debts. This way, you can pay off troublesome payments with no interest. They usually come with low or no APR during the introductory period (usually a year, but it can go up to 18 months). That should be enough time for you to pay off your debts.
Once you get this card, pay off your balance regularly, and you’ll have no other costs. In case something remains, you’ll be charged a regular card interest. That can be of great help to keep your head out of the water until you get rid of debts. Still, you might not be able to apply for one of these if your credit score isn’t at least good.
If you don’t have any of the mentioned issues and your credit score is good, look for a card that brings the most benefits for a user. The more you spend, the more points, miles, and cashback you earn. Depending on your habits, you can choose the benefit that suits you best. So, for example, if you travel a lot, all those free miles really come in handy.
Compare Fees and Interest Rates
These are the main items to compare when choosing a credit card. The average interest rate for this financial tool is around 20%, but you can come across good deals with 15 or 16% APR. However, if your creditworthiness isn’t ideal, APR can be as high as 36%.
As for the fees, the main ones are the annual fee and the late payment fee. You may waive the first if you’re a worthwhile borrower. The second cost is important because it awaits you if you’re late with the payment. If this happens to you often, this fee can be quite high.
A credit card can be handy if you use it properly and pay off your balance regularly. You have many options at your disposal, so check them carefully and determine which one suits your needs and credit ability best.