Credit Cards in Kenya: Dos and Don’ts (How to Use Credit Cards Responsibly)

Credit cards have generally not been popular or even well understood in Kenya. In fact, by 2018, only 250,000 Kenyans had credit cards. This is even though most Kenyans do qualify for one - even with as little as a monthly net income of Ksh15,000. 

Experts believe that a credit card is not only an excellent modern way of budgeting, but they also offer you convenient pay-back options with many discounts, offers, and deals. Using your credit card correctly can be a great tool to help you along your saving journey. 

But what does it mean to use credit cards responsibly? This article gives you the dos and don'ts of credit cards to help you know how to use credit cards effectively.  

Credit Card Do’s

Pay on Time and Preferably Pay the Whole Bill

There is a popular misconception that carrying a balance on your credit card (i.e., not paying in full what you have spent after every cycle) can help improve your credit score. Nothing can be further from the truth. A missed or late payment can not only affect your credit history, but it will also attract late fees and lead to an increased interest rate. 

Therefore, it is important to ensure you make your credit card payments on time, every time. Consider setting up automatic payments on your current or salary account or electronic reminders to help you remember to pay on time.

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It is very important to note that by paying the bill in full, you do not incur any interest - you only repay what you used. This applies to the interest-free period your card offers which range from 30 days to 55 days in Kenya. 

If you pay partially, the interest charged by the issuer applies only to the balance.

Check Your Statement Often and Carefully.

Don’t leave anything to chance. Always ensure you carefully go through your credit card statement - either online or request your card issuer for a report. 

This will not only help you identify fraudulent transactions, but it will also help you trace any unnecessary spending and help you effectively tame your spending.

If you notice any unauthorized spending, ensure to notify your card issuer immediately and deactivate the card. 

Use your Credit Card Wisely (Avoid Unnecessary Expenditure)

Swiping a card every time you make a purchase has the power to make you feel like you are spending free money. But keep in mind that although you are spending in advance, it is still your hard-earned money you are spending. 

Hence, learn to exercise restraint and avoid making unnecessary payments using the card. Here are some rules that can help you:

• Treat the card like cash. Every time before you swipe that card, ask yourself, could I still pay for this if I was using cash? If the answer is no, then skip that purchase. 
• Wait 24 hours before you make the purchase. This is especially useful for online purchases. Before you make a purchase, give yourself a 24-hour grace period to decide whether you need to make the purchase. 

Select a Credit Card With Benefits That Suit Your Needs and Negotiate Favorable Annual Fees and Interest Rate

Do your research and find a credit card that offers benefits that suits your spending. For example, only take a credit card with air ticket discounts and other airport benefits if you travel a lot for work or leisure. 

On the other hand, once you have chosen a suitable credit card issuer, be sure to negotiate favorable terms upon signing up. For example, you can negotiate a year or two waiver on the annual fees and lower interest rates. In summary, ensure that you are getting a good deal for your money. 

Take Advantage of Rewards, Promos, and Discounts

Most credit card issuers offer a multitude of benefits to their customers. It could be cashback, airline miles, free gas, specific discounts, loyalty points (could be redeemed at selected merchants), etc. 

This is one way that a credit card can help you save money. Hence ensure to use these benefits to the maximum. For example, when traveling, check what benefit your credit card offers that could help get you maybe a discount on the ticket or a priority pass to save you some time during check-in. 

Educate Yourself on Credit Card Fraud

Ensure you know all there is to know about credit card fraud. There is sufficient information online to educate you on all the precautions you need to take when using a credit card. Alternatively, talk to your card issuer and ask all the questions to ensure you are fully conversant. 

Ensure to Read the Agreement and Know the Terms and Conditions (Always Read the Fine Print)

There are many things we sign off on without reading first. This should not be one of them. Before you sign your credit card customer agreement and the account opening disclosures, ensure you have read and understood every clause. 

This way, you will know what to expect regarding the terms and conditions - interest rates, annual fees, benefits, due dates, and all the other crucial information. 

Limit the Number of Credit Cards

It might be tempting, but it is best to keep the number at one or two maximum. It will be easier to keep track of transactions and payments than if you have multiple credit cards. 

Credit Card Don’ts

Never Spend Above Your Credit Limit (Avoid Spending More Than You Can Afford)

Avoid spending above your credit limit. Keep in mind that a credit card expenditure is an advance that you will need to pay back. Also, staying below your credit limit helps you maintain a good credit history. 

Note that if you spend above your limit, you will be charged an over-the-limit fee which you most probably don’t want. 

Never Skip a Payment

As mentioned above, always, always make sure to make payments on time. This is one of the most significant issues that can damage your credit history. Set an automatic payment if you can not keep up with the payment dates. 

Avoid Making Minimum Payments Only

A minimum payment is a minimum amount you must pay by your due date to keep your card active and the account in good standing. 

While you should strive to pay at least the minimum payment, you should always try to settle the whole balance to avoid accumulating interest charges. 

Note that making minimum payments only will, in the long-term, make the cost of your credit very high since you are going to stay in debt longer while paying monthly interest. 

Avoid Using a Credit Card for Everyday Needs

In truth, there are many advantages to using your credit card for everyday purchases. For example, it is a great way to track your expenses, enjoy customer protection benefits, and above all, you get to enjoy many rewards that come with making payment using a credit card. 

This can easily motivate you to use your credit card for every small purchase. But should you?

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In many cases, especially if you do not practice good payment habits, the disadvantages of using a credit card for everyday purchases can outweigh the benefits. At the minimum, it can lead to overspending, which in return, leads to high-interest charges and other fees in case you exceed your limit. 

Therefore, do not substitute your credit card for cash to purchase everyday items like food, clothing, and petrol for your car. 

Don’t Share Your Credit Card Number Unless You Initiated the Transaction

Never share your credit card information with unidentified people, especially online. There are many reports (both local and international) of identity theft and phishing scams that pretend to be legitimate organizations and ask for your credit card details and use them to commit fraud. 

Contact the credit card issuer in case of any suspicious activity.

Avoid chasing credit card rewards.

One of the big advantages of credit cards is the ability to save money in the form of rewards, such as cashback, shopping discounts, and travel perks. 

But this can become a problem if you get into the habit of chasing rewards as opposed to following your budget and planning your spending. 

If you keep making unnecessary purchases and are then unable to pay the balance in full every month, the interest rate on the balances can add up to more than the value of the rewards. 

Therefore, avoid spending on your credit card or signing up for multiple credit cards just to ‘enjoy’ the benefits. Just because you have a credit card does not mean you throw out all the wise spending principles, such as the 30-day rule. 

Never Use Your Credit Card for Cash Advances.

A credit card cash advance is a service provided by many credit card issuers that allows you to withdraw cash either at an ATM or over the counter at the bank. 

Although it is a good service for when you are stuck, it is one of the most expensive ways to get cash. 

When you use a credit card to make a purchase, you get at least a month to pay it off before it begins to accumulate interest. But when you use a credit card for a cash advance, it begins accruing interest immediately, and the interest can be a lot higher than the normal interest. 

Never Try to Clear Debt with a New Credit Card

It might be tempting to use a new credit card to settle some of your existing debts. However, keep in mind that the credit card is also debt, and in many instances, the interest on a credit card debt is higher than your existing debt. 

WRAPPING UP

Owning a credit card is empowering. It allows you easy access to money when you need it and makes purchasing - both online and in-person - much easier. 

However, owning a credit card does not give you the power to show how rich you are. It is still debt and remains so. 

Therefore, the above credit card dos and don’ts will help you base your spending on two crucial financial tenets: spending wisely and living within your means.