How to use a credit card to build a credit record in your 20s

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Learning to manage your credit in your 20s will ensure you financial well-being later on in life.

FNB credit card CEO, Chris Labuschagne says it is unlikely that you will go through life without ever taking some form of debt.

“Since most people are likely to take out a loan at some stage in life, whether to buy a house or car, it is important to have exposure to the discipline that comes with paying back debt and controlling the associated interest and fees. This can be taught by initially taking on small and manageable forms of debt, and never taking on more than you can afford to pay off,” he says.

“One of the most important things when deciding to apply for a credit card in your 20s is to ensure that you are more than capable of making the repayments. Be safe and set your limits even lower than what you can afford and try not to spend more than what you are able to pay back in full on a monthly basis. Avoiding emotional shopping, gambling and living above your means are key to managing your credit effectively,” advises Labuschagne.

Once you have your credit card, Chris encourages that you become familiar with the following:

1. Building your credit score

Acquaint yourself with the behaviour that will build a positive credit record. Ideally, pay your credit card in full every month or exceed the monthly minimum repayments. Also make sure that the bills you receive are in your name and you keep proof of payments. Be sure to check your credit records at all credit bureaus to ensure that your information is correct. Remember you are entitled to one free report per year.

2. Interest-free repayment period

Most banks offer an interest-free repayment period on their credit cards. This functionality allows account holders to pay their accounts in full on a monthly basis without incurring interest. Interest on a credit card accumulates on your daily balances.

Lastly, make sure that your bank offers you credit facilities that will be able to grow with your financial status. As your career advances and your income increases, you might want to start considering a credit card account that offers you airport lounge access, rewards and travel benefits. These are value-adds that an entry level account might not have. Your bank and their product offerings should be able to address your needs as they change.

“Credit usage and the financial implications that come with it may seem complex, but sharpening your credit knowledge and familiarising yourself with the concepts and implications of credit facilities will aid you in preparation for the larger credit agreements like a vehicle or home loan, which you might need later,” concludes Chris.