As a fresh graduate, you may be excited about getting your first credit card as the first step to financial independence. You may be thrilled about building your credit or earning extra rewards with a new credit card.  

However, credit cards are often a double-edged sword. If not managed properly, credit cards may increase your risk of incurring a debt. To help you make the best decision, we break down the pros and cons of getting a credit card as a fresh graduate.  

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Excited to weigh the pros and cons of getting a credit card? Read on to find out!

Pros 

1. Accumulate good credit 

As a fresh graduate or someone who’ve only worked for a couple of years, you may be looking towards buying a new car or BTO-ing with your significant other in the future. As these big-ticket items are expensive, you may need to borrow money from licensed moneylenders to fund your purchases. These large transactions may then require a credit check in which your lender checks your credit to better understand your financial behaviour, which is used to assess how likely you are to repay the loan.  

Having a credit card and not accumulating debt might help you gain a strong credit report and work in your favour in getting the loans you want.  

2. Track your expenses 

Just having graduated from school, you may not be adept at figuring out how to spend your money or where your money goes.  Therefore, getting a credit card might be the first step to learn how to track your spending. This is because your expenses are clearly stated out in the monthly bill. 

Moreover, as credit cards need to be managed carefully to prevent debt, you will gain experience in prudent management of your money. This teaches you useful financial planning skills!  

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So many considerations! All these are important in your decision to get a credit card!

3. Prepare for emergencies

Credit cards are beneficial in the case of emergencies, especially for fresh graduates who may face unforeseen expenses. If you need a new computer or need to pay the rent to your new apartment, having a credit card would be useful in cushioning these outstanding costs.  

However, be wary of being overly dependent on your credit card whenever you need extra money. Instead, use your credit card only in an actual emergency and ensure that you can pay it back on time every month to avoid compromising your credit score. 

4. Awesome perks and benefits  

As a fresh graduate, one of your objectives might be to accumulate more rewards and maximise savings so that you can pay back your loans and prepare for your future. One of the greatest perks of a credit card is to gain big rewards in the form of cashback whenever you make a purchase.  

This means large discounts on travel, entertainment, groceries and even online shopping. The amount of cashback you get would also outweigh any initial credit card fee you have to initially pay.  

If you are interested to find out what are the best credit cards for fresh graduates, check out this blog post. 

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So many pros of credit cards! What then are the cons of getting a credit card? Read below to find out!

Cons 

1. High interest rates 

One drawback of a credit card is its possible high-interest rate. These interest rates may seem harmless at first but can lead to debt especially if you do not pay your bill on time. 

For example, consider having a balance of $2,000 on your credit card which requires a minimum monthly payment of S$53. Each month, you are charged interest at an annual interest rate of 20%.  

Over 5 years, the interest alone would cost $1,179. As $1,179 is a large amount of money, this shows how high-interest rates may eventually trap you into debt. Of course, the high-interest rates should not make you avoid getting a credit card. Rather, do your research on the credit card with payment options that are best suited for you and their respective cashback so that you can maximise your savings.  

2. May lead to debt 

In light of the modest paycheck at the beginning of one’s career, credit cards may not be ideal for those who lack confidence in staying on top of their spending. One common misconception about credit cards is that paying the minimum payment each month is sufficient. However, if you only pay this amount, you may accumulate debt and pay a significantly high amount of interest by the time you settle your debt. 

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Feels scary to run into debt if my credit card is not managed properly! 

3. May negatively affect your credit score 

From what we discussed in Pro #1, good credit can only be built if you pay your bills on time and spend responsibly. However, the converse situation should also be considered. If you pay your bills late and overspend, your credit score may be affected adversely.  

One late payment can cause your credit score to significantly drop and even stay on your credit report for several years. Similarly, if you tend to overspend and accumulate debt, your credit score will drop.  

With a poor credit score, you may lower your chances of getting loans for big-ticket items like a car or apartment.  

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With the pros and cons listed, it is important to look at your priorities and create a balance!

Tips from us: 

1. As a fresh graduate, apply for just one credit card. Applying for too many credit cards can damage your credit unless you have done your proper research and know that you can manage and gain from multiple cards. Not sure which card to choose? Use the CardsPal app to compare and decide which card suits you best! 

2. Determine if you are responsible enough to handle your credit card. Not splurging beyond your means and ensuring your bills are paid on time are key steps in properly managing your credit cards.  If you are not confident of using your credit card responsibly, such as only for important purchases, or lack the cash flow to pay your bills back regularly, getting a credit card may not be the best decision at this point in time. 

3. Research credit cards with low annual fees and high cashback. For information about credit cards with no annual fees, read our blog here. 

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We hope our tips have been helpful in your decision to get a credit card!

Maximize Your Rewards with CardsPal  

Planning on getting a credit card and looking to maximise savings? Your credit card offers deals and discounts at different restaurants and shops where you can enjoy savings upfront. Get to know us here. Furthermore, read about common credit card mistakes that lower your credit score here.

Can’t keep track of the perks that come with your cards? Use CardsPal’s Cashback Calculator  for recommendations on cards that give you the most cashback for your spending.   

Download the app on the App Store or Google Play Store now and get the latest deals, tailored according to the cards you own!