Should You Get a Credit Card As Soon As You Get Your First Job?
You’ve worked your way through college and landed your very first job. Exciting opportunities await you as you take your first steps towards building a successful career for yourself.
As a young adult of this generation, you probably know how to effectively use technology to carry out daily tasks over the internet. For example, even some of the smallest activities of daily life such as fashion shopping, buying groceries, and ordering food, are done online. And one of the best ways to pay for such purchases is through credit cards.
Young folks all over the world today use credit cards for more than just buying things online and ordering food. They take them along when they go on holidays. Why? Because many of these cards offer a range of travel, accommodation, and dining benefits which help save money. And considering that you’re still in the early stages of your career and probably don’t have a whole lot saved up in your bank account, why wouldn’t you want to save money using your card’s offers?
Yes, credit cards are convenient to use, offer you a whole lot of benefits and ways to save money, and are easy to carry around wherever you go. But does that mean you should get a credit card as soon as you get your first job?
How Getting a Credit Card Can Make Sense
Getting a credit card is not mandatory. But take a look at how getting one can turn out to be beneficial for you.
It Helps You Build a Credit Score
It’s your first job and let’s say you’ve already planned out how the next five years of your life are going to go. You plan on getting a few raises, improving your bank balance, and buying the things you need, correct? Sounds great, so why do you need a credit score then?
What happens when you later want to take a loan to buy a house, a car, or something else that costs more than what you can afford with your own savings? When you apply for a loan, banks will look at your credit report. Your credit history tells the bank the risk involved in lending you the money, and the extent to which you are likely to default on the loan repayments.
Having a good credit score can help you get the loan you’re looking for, while an inadequate one can shut out your chances of getting the money you need.
But you need to have credit to build a credit history.
Needing credit when you don’t have any credit rating sounds like a catch-22 situation, doesn’t it? Here’s what you can do:
- In such cases, look for banks that offer you cards that are specifically designed for first-time employees. Take, for example, the CIMB AWSM Card. If you are a salaried individual below the age of 35, all you need is to earn S$18,000 per year and submit the required documents to get your card.
- Or, look for a secured credit card. A secured card is one that requires you to deposit cash as collateral. This is most often equivalent to the credit limit of the card you’re applying for and helps to reduce the risk of repayment defaults. This is another way to get a credit card when you don’t have a credit score or have a bad credit score.
Use the card you get to build your credit history over time. This will definitely go a long way in helping you get the loans you want in the future.
Rewards That Help You Save Money
Here’s another reason credit cards can be good for you – they help you save money. Not only are they easy to use, but they also give you a range of rewards in the form of cashback, rebates, miles, and reward points when you charge your purchases to them.
Use your card to pay for your purchases, accumulate the rewards, and use them to get discounts on future bills. For example, accumulating air miles can help you get cheaper flight tickets or even a free flight if you have enough miles. Rewards like cashback are directly credited back to you. So if you’re looking to save money on both common as well as uncommon transactions, using a credit card is a good way to do so.
Split Large Purchases Into Smaller Ones
There may be times you want to charge a large purchase to your credit card but can’t afford to pay it off when your card statement comes the next month. Some credit cards give you the choice of splitting your large payments into a series of smaller ones using their Instalment Payment Plans (IPP).
Considering that you can pay these instalments over a few months or even years, it definitely does give you an extra degree of financial flexibility. What’s more, many of these IPPs don’t charge any interest.
3 Important Things to Look for In Your First Credit Card
Now that you know how getting a credit card can be beneficial to you, you should know what you need to keep in mind when you’re getting one.
1. Mandatory Documents
One of things you will require when applying for a credit card is your latest payslip or payslips for the last 3 months. If you’ve started working just a month or two ago, it would be wise to wait for a few months so that you can submit these documents and be sure to get that card.
2. Cards With Annual Fee Waivers or No Annual Fees
Credit cards often charge an annual fee. However, some of them come with zero annual fees or they’re free for life, while there are others that usually have a waiver for the first year or a few years. Looking for cards like these will help you save that much money every year.
3. Rewards That Match Your Spending Habits
As discussed earlier, different cards have different rewards programmes, each designed to reward you when you spend on specific transactions. If you want to make the most out of the card you’re applying for, apply for one that will reward you for your most common spends.
For example, if you love to dine out often, get one that gives you points or discounts on dining. This will help reduce the costs of eating out. On the other hand, if you choose a card that rewards you for entertainment spends, you may find that it’s not as rewarding when you use it to pay your dining bills.
Matching card rewards with your spending habits will help you make the best use of your card and save money on most transactions.
3 Reasons Why You May Not Want to Apply for a Credit Card
As useful and convenient as credit cards are, they also come with their set of conditions you need to be wary of. Here are a few reasons why you may want to reconsider getting one:
1. You May Not Be Able to Pay Your Monthly Dues Regularly
A credit card is essentially a short term loan. You are using money that is not your own, so you have to pay it back to the bank. This usually runs on a monthly cycle.
Your bank may give you a grace period within which you need to make the payment and clear your dues. Any dues that remain unpaid will be subject to heavy interest rates of around 25%. This makes your dues all the more difficult to pay and you may soon find yourself stuck in the vicious cycle of credit card debt. This is something you want to avoid at all costs.
So, if you’re thinking of applying for a card, you need to make sure that you will be able to afford the repayments every month. If you already have other financial commitments, like a student loan, put off applying for a card till your financial situation is more stable.
2. You Don’t Earn Enough to Apply for One
Every card comes with a minimum annual income requirement. If you don’t qualify for this criterion, the card simply won’t be sanctioned to you. You may not qualify for a secured credit card either. In such cases, hold off from applying for one just yet. Wait till your earning reaches the required level so that you will have a better chance of getting your application approved successfully.
3. Repeated Rejections Can Affect Your Credit Score
The main reason why you should wait till you fulfil the eligibility requirements is so that you don’t keep getting rejected by banks every time you apply for a card. Multiple rejections from different banks can have an adverse effect on your credit score – something you definitely don’t want at the start of your career.
The Bottom Line
All said and done, using credit cards does make sense. They offer you the convenience of paying easily for your purchases, give you rewards, and allow you to pay for large purchases in instalments. It has everything needed to make it an effective financial tool.
That being said, you also need to be careful if you’re planning to get one. Keep in mind that it’s easy to get carried away with your spending. Since the cash doesn’t go out of your account right away, it may feel like you haven’t spent much in a month, till you get your bill and everything turns upside down.
Using a credit card requires you to be wise and vigilant. Apply for one only if you are sure of using it well, all the while keeping an eye on how much you’re spending and if you’re sure of paying your dues in full every single month.
This article was written by BankBazaar.sg.
BankBazaar.sg is a leading online marketplace in Singapore that helps consumers compare and apply for financial products such as credit cards and personal loans.