Are you thinking about getting your first credit card? If you are, it’s important to understand the credit card basics.
Getting one might sound simple, but as of last year, half of all Americans carried credit card debt. Besides just having it, that amount of debt is also getting larger each year.
To help you avoid falling into similar pitfalls, we’ve compiled a list of tips and compiled them into this credit card 101 guide. Following it can help you make smart decisions with credit.
So what do you need to know?
Keep reading to learn all about credit cards for beginners.
Credit vs. Debit
Most people who belong to banks or credit unions have debit or bank cards. These allow you to directly access the money you have. When you make a purchase, it subtracts the money from your bank account.
Credit cards work a bit differently.
Credit is the money that banks and credit unions loan to you. When you borrow it and make a purchase with your credit card, you eventually have to pay it back.
Instead of depleting your savings, credit provides you with an easy way to buy things that you might otherwise not be able to afford. However, problems happen when people struggle to pay that money back.
How to Get a Credit Card
When you join a bank or a credit union, most provide you with a debit card to access your money. However, most institutions won’t automatically give you a credit card.
That’s because banks take a financial risk when they issue out credit cards. If people don’t pay their credit card bills on time, banks can end up losing money. Because of that, they first vet people to ensure that they’re reliable.
If you’d like to sign up for a credit card, make sure that your bank accounts show regular and consistent usage. This will help prove to your financial institution that you’re worthy.
Be Aware of Your Credit Score
If you begin to have problems paying your credit card bills on time, you can start to affect your credit score. This number represents your creditworthiness, and if it’s too low, lenders will be hesitant to let you borrow.
You’ll end up paying higher interest rates and will only have access to less favorable payment plans. In some extreme cases, lenders might even turn you away.
To avoid these problems, make sure that you always pay your credit card bills on time. You’ll also want to keep the balance as low as possible. Most experts recommend keeping it below 35% of the maximum.
Why Get a Credit Card?
Credit scores and credit cards can sound scary, and it’s true that if you’re not careful, they can make your life more difficult. That being said, they can also help you in many different ways.
As mentioned, credit cards provide you with money that you might not otherwise have. You need to make sure that you don’t borrow more than you can afford, but those extra funds can come in handy.
Having a good credit score can also help you in different ways. You’ll have an easier time doing things like taking out loans, renting apartments, and in some cases, even getting a job.
Choose a Good Credit Card for Beginners
If you’ve never had one before, it’s important to learn how to get your first credit card. While you can go with a standard option, there are some types of credit cards that are more beginner-friendly.
Here are three of the best options that credit-newbies can take advantage of.
Student Credit Card
As its name implies, student credit cards or just that—credit cards meant for those who are studying or in school.
These cards provide students with an easy and safe way to build up their credit. Monthly fees are typically less, and interest rates are often more favorable.
These sorts of cards make an appealing choice to many young people since they don’t have to worry about getting robbed by credit companies. If you’re in school, speak with someone at your bank to see if you can get one!
Rewards Credit Card
Rewards credit cards are those that allow you to build up points over time. Once you accumulate enough, you can redeem them to earn “free” rewards.
Depending on the card and the company you sign up with, these rewards can range from anything to plane tickets to groceries.
Just make sure you do your research before signing up for a rewards credit card, though. Many companies offer discounts if you “sign up today”. Don’t get dragged into those catchy sales tactics.
Ensure the company you sign up with is right for you!
Secured Credit Card
If you don’t have any credit, a secured credit card is a good way to help you build up your score.
In this sort of setup, the bank provides you with a deposit of money. When you swipe your credit card, it doesn’t deduct from that account.
Provided that you make all of your payments on time, this provides you with a straightforward way to boost your credit score. Eventually, you can get a card that offers better benefits.
Credit Card 101: Make Sure That You Understand the Basics
Whether you’re thinking about getting your first credit card or want to revisit the credit card basics, it’s never a bad idea to better understand what credit is and how it works.
Use this credit card 101 guide as a resource to help you build up your personal credit while staying away from debt.
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