By understanding the terms and conditions beforehand, it is possible to have a positive relationship with a credit card, says Neil Thompson, head of product and customer value proposition at African Bank.
There are many cards available in South Africa, and it is important to compare the options before you apply for a credit card.
Like any other financial commitment, anyone who wants to apply for a credit card should be aware of the pros and cons.
“Comparison is vital because all cards have different interest rates and terms and conditions. Remember, once you sign the contract it is binding until the money you have borrowed has been paid back,” said Thompson.
“Our advice is always to understand the fundamentals – from which cards are available to how you can use each of them. Knowledge is definitely power when you have a credit card, which, in itself, is a powerful piece of plastic.”
One of the benefits Thompson highlighted, is being able to make purchases conveniently online, over the phone or on a laptop. When you only have cash, this limits you to having to go into a store to make purchases. Online buying is quick and simple.
The same goes for completing a credit card application online – it can be completed in minutes and approval is usually within 24 hours too.
“Once your application has been approved you are given the choice of making the minimum payment due each month or the full payment,” Thompson said.
While he stated that paying the full amount is always preferable, being able to pay the minimum balance keeps the credit card affordable.
“This is perfectly acceptable and a good choice if you have other debt to repay each month too. The key is to never skip repayments.
“Sticking to the repayment arrangement is important for many reasons but particularly because this will help you build a good credit score you can then use to qualify for bigger loans in life, such as a home loan or car finance.”
Another good reason to have access to extra funds is when emergencies strike – and since these happen when least expected, oftentimes people do not have the money to fork out on critical medical treatment or major car repairs, for example.
Another benefit of a credit card is that there is no need to carry cash. This reduces the risk of theft, as the majority of businesses accept cards.
Thompson warned about responsible use of a credit card at all times as there are downsides to having access to extra credit if not managed correctly.
Tips to stay in the clear:
- Never spend more than you can afford. Avoid thinking of a credit card as your money and always remember it is borrowed money that must be paid back – by you.
- Be clear on the terms and conditions. It may be too late when you realise what the interest rate and fees actually are. They type of card you have and the way you use it are governed by fees so ensure you understand what these are.
- Keep your personal information private. Only use secured sites for online shopping and do not share your card details with anyone over the phone.
- Use your card responsibly. Misuse can ruin your credit score, which is directly linked to how you use your credit card.
“There is no reason to end up in a credit nightmare. Choose wisely when you apply and understand how a credit card works,” Thompson said.