Regardless of how people say adulting is hard, it’s still an exciting journey. This is the time to get out of your comfort zone and decide about career, love, and money independently. If you’re a few steps away from independence, a lot of things will come to mind, including the important question: Should I get a credit card?
At this point, you should already know what a credit card is and maybe even how to apply for one. It has gotten a lot easier in recent years. You can apply from agents deployed in malls or directly online. You’re also probably aware of how credit cards can help you manage your finances by allowing purchases and payments without the need for cash on hand.
But credit cards aren’t always advantageous for everyone, especially when you’re not ready to own a card. Maybe set aside the excitement over making cashless payments for now and check when and why you should get a credit card first.
Signs You’re Ready to Have a Credit Card
One thing to remember about getting a credit card: Just because you’re eligible doesn’t mean you should own one. Credit cards are financial tools that need to be handled properly. If not, they can lead you to financial woes for the rest of your life. So, before applying for your first credit card, know the signs that you’re ready to have one.
1. You Have a Steady Source of Income
You’ve landed your first job. And for a while, you’ve been managing your salary well, so you feel like you can manage a credit card, too. Having a stable source of income ensures that you have the money to pay for your dues on time. You know what happens if you miss a payment, and you’re aware how delinquencies can ruin your credit score and even increase your debts.
2. You Fulfill All Your Other Responsibilities
You stick to your budget and buy what you need from what you earn. You may even have a pet that you take good care of. More importantly, you save money regularly. These are a few signs that you’re responsible enough to handle debts and repayments. Things like creating a budget plan and sticking to it is not as easy as it sounds. If you’ve been doing it for a while now, then you can start considering getting your first card.
3. You Plan Your Purchases
Most people commit the mistake of buying on impulse. But not you. You plan your purchases, allocate the right budget for necessities, and avoid unnecessary spending.
Owning a credit card requires self-discipline. If you’re not an impulsive buyer, then you may be ready to sign up for one.
4. You Understand How Credit Cards Work
Did you know that if you use your card to buy a PHP 1,500 pair of jeans and you fail to pay it on the due date, it ends up costing you more? You can end up paying around PHP 750 as penalty.
Being a credit cardholder is a big financial responsibility. Learn more about the different fees and charges and how they can affect your card spending.
5. You are Organized
Remembering to pay your debt on or before the due date is important to save on interest charges and other fees. It takes an organized person to remember due dates, billing cycles, cut-off dates, and other information essential to credit card ownership.
Signs You’re Not Ready to Own a Credit Card
Still not sure if you should get a credit card? Find out the signs you’re not yet ready for a credit card.
1. You Have Existing Debts
Whether you borrowed from a lender or a friend, having a lot of debt is not a good sign to apply for a credit card. It can be an indication that you don’t have enough money for new purchases. Unless you use your card for debt consolidation, getting into debt to pay off debts is a strategy only financially experienced individuals can handle.
2. You Depend on Your Parents Financially
Mom pays your rent and Dad covers your car monthly installments. Worse, you often borrow from ate or kuya to make ends meet. If you’re financially dependent on your family, then owning a credit card is not a good idea, too.
3. You Don’t Know Where Your Money Goes
If you don’t know where your money goes, it’s either you don’t plan your expenses or you don’t keep track of them. Responsible cardholders plan their purchases and allot money for necessities and savings. Efficient financial planning can also prevent credit cardholders from getting into bad debts and paying unwanted fees.
4. You Don’t Have Enough Savings
Having enough savings in the bank can prevent you from unreasonably using your card. If you don’t have enough savings at the moment, then maybe you should defer your card application. Having sufficient savings is a reflection of good finances. If you can't set aside funds for your future, then it will also be hard for you to set aside funds to pay off credit card debts.
Some cardholders start out with a savings account and then apply for a secured credit card. This is a good option if you want to build your credit score.
5 Things to Consider When Deciding to Get a Credit Card
Congratulations―all the signs say that you’re ready to own a credit card. So what’s next? Find out some of the things you should consider when deciding to get one.
1. Your Financial Readiness
If you’re prepared for a more complex financial tool, then ask yourself why you should get a credit card. Is it to start building your credit score or to establish a credit line? Your financial maturity and good understanding of personal finance can boost your readiness to own and manage a credit card.
2. Interest Rates
Interest rates are imposed on unpaid balances. Credit cards differ in interest rates depending on their tiers, brand, and issuer. Currently, interest rates are capped at 24% per annum while add-on rates are at a maximum of 1% monthly. But there are basic cards that charge even lower rates than the rate set by the Bangko Sentral ng Pilipinas.
3. Annual Fees
Aside from all the benefits and perks that come with the credit card, you also need to pay annual membership fees. But some banks waive their annual fees for life. Should you get a card now? Yes, especially if you’re applying for one with no annual fees forever.
4. Rewards and Benefits
Unfortunately, you need to start with a basic card that has little to no perks at all. Premium credit cards are made for those who have established a good credit score. It’s all right to settle with a basic card, though. Some banks offer a few exciting perks for you to enjoy your first credit card.
5. Security and Usage
Choose a card that you can use anywhere and is accepted by most merchants. It will also help to know the limitations of the card because some issuers require you to call and inform them of possible foreign transactions to avoid getting your card blocked.
Security is another consideration. Look for a credit card that has enhanced security features, like one-time passwords for online purchases.
When Should I Get a Credit Card?
You know you’re ready for one, but are you, really? These situations can be your cue when it’s the right time to get one.
Your Parents are Cardholders
Believe it or not, you can get a credit card even if you’re under 18 years old. How? By asking your carded parents to get you a supplementary card. It's the best way to start learning about credit at an early age. Your parents can even help you become a more responsible cardholder in the future, aside from paying the card bill.
You Get Your First Job
Now that you’re part of the workforce, it’s best to get started with your credit card journey. You’ll definitely need to build a credit history as early as now. A 2019 report from Experian found that 4% of American millennials already achieved perfect credit scores, which means it won’t take a lifetime for you to achieve a good credit history. You can always get a low-income credit card to get you started and build your way up from there.
- 11 Credit Cards for First-Time Applicants in the Philippines
- How to Apply for a Credit Card: What Beginners Need to Know
You’re Trying to Apply for a Loan
While it’s true that you don’t need a credit card to establish a credit history, it will be easier if you have one. If you can prove to loan providers that you are responsible when it comes to paying back your credit card bills and other payments, your chances of loan approval will increase. That’s a good thing if you’re planning to buy a home or a vehicle through loans. So before you apply for a loan, practice managing a credit card first.
You’re Planning to Travel
Planning to travel the world for leisure or business? You’ll definitely need a credit card to pay for your various expenses. You can’t always rely on cash especially when you’re traveling abroad, unless you want to take frequent visits to the local money changer. The advantage of having a credit card is that you can avail of various travel perks, ranging from free air miles to discounted foreign exchange fees.
You Have a Tight Budget
It’s easier to consolidate all your expenses in one major payment a month. You can even set a spending limit to prevent you from overspending. To maximize your card usage further, get yourself a cashback credit card that earns you some of your money back on specific purchases. See, credit cards can be beneficial, too.
You’re Starting a Business
Starting a business isn’t simple. You’ll need time, manpower, and lots of money. And since you can easily get access to the first two, the third one can get tricky. So why not use a credit card for your business? It can help you separate your personal expenses from business expenses and it can serve as a temporary funding source for emergency expenses. Plus, it earns you more financial perks that will help your business in the long run.
"Should I get a credit card?" It depends on your current financial situation. Make sure you’re getting one not out of impulse. Evaluate how prepared you are in handling a more complicated financial tool and compare credit cards before signing up for one. Remember that owning this little piece of plastic doesn’t grant you access to all the money in the world. Every swipe comes with a price, so use it wisely.
-  BSP caps interest rate and finance charges on credit card receivables (Business World, 2021)
-  Fraud-Protection and Security (Credit Card Association of the Philippines)
-  Experian Reveals Traits of Consumers With Perfect FICO Scores