Welcome back! Last week, we discussed the definitions of FICA and RICA, and which documents you need to apply for credit. If you missed last week’s article, feel free to review it by Knowing Credit: The Basics [Part 3/7]
. This week, we’ll be talking about the steps you need to follow to make sure you are making the right decision in applying for credit.
Definition of the week:
is a financial plan or estimate of your income and expenses over a certain period of time, for example a year.
is whether you can afford to pay the price or cost of something.
Before applying for credit, it’s really important to get quotes from different credit providers. Although you may be looking for the same amount or similar products, different providers will have different costs. Credit costs may include interest, initiation fees, services fees, and even insurance. These amounts will all be added to the amount you borrow, which means that you always pay back more than you borrow. So it’s only sensible to want to pay back the least possible amount, on top of your original amount.
Follow these five easy steps to see whether you are making all the right decisions when applying for credit:
Look at your budget (a list of your income, e.g. your salary; and existing expenses, like property rental, car repayments, electricity, groceries, school fees and so on) and see whether you have the extra money you will need each month for the credit repayments.
Contact different credit providers and find the best deal. Compare various credit products and offerings, and find the one that suits your needs.
Don’t borrow more money than you actually need – this may result in higher monthly repayments than you can afford!
Take a careful look at whether there are any hidden costs associated with your credit application, check all the fees and charges that may be added to the original amount, and make sure you read all the terms and conditions (the ‘fine print’) on your credit agreements.
Make sure that the credit provider you choose has a good reputation, and that the company is registered as a credit provider. This is really important, because it will mean that they obey the law and respect your consumer rights.
Once you have finally chosen a credit provider, take a look at your budget again. If you can afford the monthly repayment that the credit provider has quoted you, as well as still have a little left over in your bank account each month for emergencies, then you can proceed with your credit application.
Come back next week to learn more about how to shop around for credit before you apply for it, and to learn the definitions for ‘fixed rate’, ‘variable rate product’, and ‘prime rate’.