- You are in your first weeks of independence and you need a washing machine and an armchair for your apartment,
- You caught up with an old school friend and realized that they live the high life, while you don’t have that opportunity,
- or you have medium-term plans to buy a car, but you do not have enough credit bureau history to request financing.
What are you doing? Applying for a credit card is probably the first thing that comes to mind, but are you really ready for it? Or are you just having a start to try to “give yourself a better life”?
Answer some questions before buying it, and if you pass this filter you will know how to act before making a decision.
Do you know how a credit card works?
No, it is not an extension of your salary to buy what you want. It is a tool that helps you make purchases that you will later have to pay for with your own money.
A credit card is used to carry out transactions in a wide variety of establishments without the need to use cash, in fact, if cash is your concern, you can have it at ATMs. With your card you can also direct debit payments for services, especially if you are one of those forgetful people who tend to pay everything late.
The benefit that you can obtain with this tool is being able to defer your purchase to several payments, although obviously, this sometimes implies having to pay a interest which American Express defines as “the amount you pay in exchange for the possibility of financing”.
Consider that you will not obtain a line of credit of 50 thousand pesos if your monthly income is 5 thousand. Each banking institution carries out various studies to define the credit limit of your card before it is approved, taking into account factors such as your income level and your credit history.
We recommend: What happens if I don’t pay my credit card?
The secret to success is this:
If your credit card becomes a mode of payment that you use frequently, take care that the payments are made on time, because if you don’t, it could be very expensive, literally speaking, because you will be charged for late payment expenses and your debt could increase up to three times. This is not to mention that it will be reflected in the Credit Bureau, since that delay in your payment will be reported, leaving you with a stain on your credit history.
In general, we already reviewed the way a credit card works and surely you already feel ready to use it, but stop! We haven’t moved on to the next question yet:
How am I going to pay my first credit card?
Did you think that everything was as simple as knowing how it works? Well no. As I already mentioned, everything you spend with the card must be paid for later. These are your two options:
- Being Totalero: it means that you will pay the total of what you consumed during the previous month. This will help you not generate interest and you will end up paying only what you acquired. The CONDUSEF has reported that more than 40% of credit card users are totaleros.
- Being NOT Total: This is the profile of those who always have a balance to pay, that is, they pay only part of what they owe. This results in the debt becoming more expensive, since the corresponding interest is charged for not liquidating 100% of your purchases.
At this point it should be noted that if you pay the minimum required, you will only make your debt practically endless. To do this, I show you the order in which, according to the CONDUSEF, the money you pay to your credit card is allocated:
- Capital subscription
This is the reason why you feel that your debt is not going down and, if you also continue to use the card, I better not even tell you, your personal finances will go down. For this reason, it is recommended that you contribute more than half of the minimum, so that reducing your debt is a possible goal.
An important point is that you analyze your income before taking responsibility for your first credit card: are you a student and do not receive any salary? So why are you requesting it? It is best to start a process until you have a stable income.
If your earnings are from commissions, you have to be aware of not accepting a loan that you cannot afford in a season of low earnings.
- Do not use more than 50% of the credit limit granted by the financial institution, that is, if your credit limit is 10,000 pesos, do not spend more than 5,000
- Make sure that the monthly amount that you will allocate to pay your debts does not exceed 30% of your income
We continue with another key question:
What are you going to use it for?
This point is important because if you want your card only for emergencies, it will not be convenient for you if its annuity means a blow to your personal finances, so preferably look for a card without an annuity.
The CONDUSEF recommends that even if you do not use it, Verify your account statements month by month to avoid that there are changes in the policies of the issuer and that you do not even know.
If you plan to use it for daily life, then focus on reviewing the commissions and operating expenses, as well as the promotions or benefits that you can have when using it.
Knowing your frequent expenses will also help you to make a better decision, for example, if you usually travel for work, a card could be convenient for you that accumulates miles with your purchases and eventually allows you to obtain discounts on airlines or hotels. If you carry out transactions related to health, check if you benefit from a card that gives you points for buying items or services related to this item.
The most important:
How to know which credit card is best for me?
At this point you already know the basics on how to manage a credit card, now let’s talk about the complicated: when to choose one of the more than 100 products on the market (data from El Economista).
The first comparison indicator is the CAT (Total Annual Cost) that we can define as the indicator of the cost of your credit card, which incorporates all the expenses and costs inherent to it. This number is expressed as an annual percentage.
Points to take into account:
- Check if your card asks you to make a minimum monthly purchase, so you will avoid unnecessary charges.
- The CONDUSEF recommends making sure of other types of charges that may be made to you, such as charges for checking your balance, for transfers or cash availability, etc.
- Investigate in search engines and forums the type of complaints the card issuer has.
These are some of the most important points to compare when making your first credit card application.
It may interest you: How do you pay a credit card?
Which credit card is right for me?
I share this tool that the CONDUSEF generated to help compare and answer this question.
- Period: start and end date on which the use of a card is recorded.
- Cutoff date: Date on which a new registration period ends and begins.
- Payday limit: date before which you must make at least the minimum payment of the debt to avoid falling into delinquency and therefore affect your credit bureau.
- minimum payment: minimum required for your account to be considered current.
- Payment to not generate interest: It means paying your total debt in exchange for not applying the corresponding interest rate.
Now yes, you already have all the tools to make an intelligent and well-informed decision to acquire your first credit card.
And you, do you feel ready?