A credit card is a convenient way to borrow money to pay for the things you want and is often one of the cheapest forms of credit.
Credit cards are issued by banks and other financial organisations.
If you have handled your savings or cheque account responsibly, you can probably get a credit card from your bank. It is likely that you will be approved quickly, because you have a relationship with it. However, you can also get a credit card from other banks or financial institutions by applying online or having a face-to-face meeting with their representatives.
Before you apply for credit, you should shop around for the best credit rates and take into account other benefits offered by the financial institution.
The interest rate is the interest payment you make on your credit balance. The interest rate can be fixed or variable. A fixed interest rate is rigid; it remains the same every month, whereas a variable rate is flexible.
In terms of eligibility requirements, you need to be at least 18 years old and earning a monthly income. You also need to provide proof of income, with a bank statement reflecting three salary deposits, proof of residence not older than three months, and a copy of your bar-coded ID.
Before you apply for a card, it’s important to consider whether you are ready to have one. The key to success with a credit card is that you manage your credit account responsibly, control your spending and ensure you make all payments on time. Many people find it easier to spend money when they're swiping a card, so if you're not careful, you might end up getting in over your head. Keep your credit card spending under control to avoid damaging your credit profile and getting into a lot of debt.
It's also important to consider your spending habits.
There are numerous types of credit cards available. There are cards for frequent travellers, shoppers, and other categories of people. Choosing the right card may improve your credit card limit and save you money. Make a list of the things for which you intend to use the card and choose a credit card that aligns with most of the items on your list.
It's important to understand your credit limit, the fees associated with your credit card and the penalties.
The credit limit is the limit to how much you can borrow with a card and it is determined by the issuer using several factors, including your credit history and monthly income. Be honest with yourself - if your institution gives you a high credit limit, are you disciplined enough not to overspend? The highest credit limit is not always the best option. Once you've received your credit card, make sure you know what your credit limit is and then spend accordingly.
In addition to the interest, most credit card issuers charge annual, transaction and balance transfer fees.
You might also be charged penalties for late payments or exceeding your credit limit. So, along with considering the credit card rates, it is essential you ask about all the associated fees and choose the issuer with the fewest.
Neil Thompson is the head of product and customer value proposition at African Bank.