When You Should Apply for a Credit Card

Do you find yourself window shopping, wishing you could buy things you can't afford? Maybe you want to apply for a credit card so you can then spend money like there's no tomorrow. If this is you, you're certainly not alone. Americans charged over $1.2 trillion dollars in 1999 alone.

But you shouldn't even consider filling out that credit card application until you know exactly what you are getting into and ultimately, can afford a credit card in the first place.

In theory, a credit cards is a great way to purchase goods and services, especially expensive ones. Sometimes you need an item or two right away but simply don't have the funds up front. Credit allows you to get what you need or want now and pay for it later. An interest rate is tolerable as long as you keep up with your payments. But if you obtain a credit cards under naive expectations, then you could find yourself imprisoned in dreadful credit cards debt and in the end, spending a lot more money than you ever planned on.

Many banks and credit cards companies will seduce you with high credit limits or low APR. But don't be fooled by these enticing offers, as most of them are tricky and benefit the financial institution, not you. Instead, you need to carefully shop for a plan that features a low, fixed interest rate. Variable rates can sometimes be much lower than fixed rates and it's not necessarily unsound to apply for a card with such, but for beginners, fixed rates are really ideal as they can be adequately budgeted for.

The interest rate is very important - as it will ultimately indicate how much you pay for your credit and how likely it will be that you will fall into debt. The higher the rate, the more difficult it will be to pay your monthly balances on time. However, low-rate cards often have low credit limits as well. And if you overspend, you can get charged hefty penalty fees. It is vital to meet every payment on time and stay within your limit, for two reasons.

The first one is obvious: you don't want to get behind in your payments, owing an inflated amount to your financial institution (whether through penalty APR, late fees, or other charges). The second is you are developing your credit history when you use a credit card and any late payments or overspending gives you a bad mark. This may prevent you from buying a car, a home, or obtaining another kind of loan when lending institutions or companies review your credit report.

So now you know how a credit card works and what to look out for when shopping around for one, but this will not matter much if you simply don't have the income or financial restraint to keep up with payments. There is no point in using credit, if you are going to abuse it. You're only setting yourself up for disaster. If you've been getting by without credit as is, you might want to consider waiting a while before you apply for a credit card. Otherwise, proceed cautiously.