Credit can be good for you
5 ways to use credit
1. Apply for credit in your first job and established a credit rating early.
2. Keep your rating positive and grow your credit over time.
3. Never abuse credit. Debt has to be paid sooner or later.
4. Take advantage of six months interest free credit offered by most non-food retailers.
5. A credit card is a financial tool, that can help you if managed responsibly.
So you have started to save, your needs under control and your wants still lying in wait until you get the salary increase, your brother-in-law, finally pays you back money you lent him a long time ago, the tax man pays out or you win the lotto. Sorry to say, none of these are likely.
What is more important is you. You have begun to feel comfortable about your money management ability and are on the way to a more controlled financial life.
Comfortable with your money
When you have begun to manage your finances at this level and are quite comfortable with sticking to your budget, you should be responsible enough to qualify for some credit and apply the same discipline to your credit purchases. Of course, your credit purchases must be included in your budget so that they remain under your control.
Buying on credit is like taking a loan. The store is giving you a loan while you go home with the products to enjoy, before you have paid in full for the goods. The store is trusting you to pay them back because of some information that they have about you. They will need to know how much you earn, the length of your employment, your residence status and your credit rating. Initially, this is a bit ironic. Many credit providers are reluctant to provide credit if you do not have an established credit rating.
Still it is worth pursuing and this is why it is important to prove your ‘credit worthiness’ by establishing some sort of stability. This is where length of stay at one home or years spent in the same job can really help.
Well done. Your credit has been approved.
Six months free credit
Start with store credit as you will be limited by range (to some extent – you won’t be able to buy food at a clothing store. Also store credit has some great advantages.
Many if not most retailers offer six months free credit so a purchase of R600 (3 shirts) remains a purchase of R600 without the burden of having to have the full amount at the time of purchase. Over six months you will be able to pay R100 each month and the original price will not change. Be very careful here. You must pay on payment due date. Late payments or missed payments attract interest and that is exactly what you are trying to avoid. If you slip up in this way your six months free credit is no longer free because you will be charged a penalty for a late or missed payment. If, during the six months, you return to the store and make a purchase of R200 this will increase your repayment. Instead of paying R100 per month, you will pay R120 per month. It will still be interest free, as long as you pay the correct amount and on time.
WHAT IS THE DIFFERENCE BETWEEN STORE CREDIT AND A CREDIT CARD?
A credit card is a useful means to shop and can be used to buy almost anything, anywhere in the world. This means you do not have to carry cash and you are always able to buy something on your credit card.
The important thing about a credit card is to use it wisely so that you get the most out of the advantages it can offer you.
A credit card offers you 55 days free credit. Like store credit, credit is free but only for 55 days. Where store credit lets you divide the total purchase amount by the amount of time you are allowed to pay, a credit card must be paid in full. You must pay the full amount on your statement each month. This will include all your purchases in the month and show a total for everything that you have spent. This is the amount that must be paid in full so that you don’t get charged interest. For any late payment, or payment that is less than the total amount due you will be charged interest. This interest will add to your total and show on your account in the following month and each month thereafter until the full amount is paid plus the interest. PAY IN FULL AND ON TIME. YOU WILL HAVE THE BENEFIT OF 55 DAYS FREE CREDIT.
Think about this as a real way to manage money, but not as an ‘excuse’ to live above your means. Establish a good credit rating and avoid loan sharks at all costs.
Please note: The interest after add after the free 55 days is high. Banks are in business to make money, and charging interest is how they do it.
The bank only asks you for a minimum payment in order to keep your account open and running but paying only the minimum gives the bank the right to charge you interest. They do not make it obvious because the more months they give you to pay, paying only the minimum, the more they will be charging you over time.
Again PAY IN FULL AND ON TIME. YOU WILL HAVE THE BENEFIT OF 55 DAYS FREE CREDIT
There are many credit cards out there. In addition to the traditional credit card offered by the banks – ABSA, FNB, Standard and Nedbank, there are many others provided by retailers, airlines and insurance companies. They all have their own unique features and some are very expensive to run. Don’t be conned by what you can gain from accumulated loyalty points. You are paying for these one way or the other.
Most credit cards charge an annual fee of about R120 to R160. Anything out of this range should be questioned. The annual fee is a fair price to pay for 55 days of free credit. It’s cheaper than a loan shark and far less dangerous.
One of the great advantages of a credit is flexibility. You can travel safely locally and abroad without the fear of losing money. Your card can only be used with your signature. You can stop a stolen card immediately just by phoning the bank. You cannot stop your cash being used once it is stolen out of your hand.
A credit card can be used to effectively buy things you need if you manage your payments responsibly and take away the threat of carrying cash.
DON’T GET CARRIED AWAY. YOU MUST STILL FIND MONEY TO SAVE AT THE END OF EACH AND EVERY MONTH.
Remember: E(bits)da – Every bit saved does accumulate!