Credit cards can either be incredible tools or something that should be avoided for those that don’t know what to do with it. Credit mistakes aren’t only costly, but can hurt your credit score and make it harder to establish a credit for loans and other big financial events in the future. Parents should teach their children that credit could be an amazing resource in their financial toolset if used correctly. You should be able to understand the underlying issues with credit cards yourself before teaching a young adult. With great credit comes great responsibility. Here are credit card tips you need to know in order to use a credit card to build credit instead of debt.
Understanding How Credit Cards Work
Not knowing things about credit or being ignorant to the overall function of them is when you can get into trouble and make mistakes. Understanding the fundamentals behind cards is what will help you make decisions when choosing to use your first credit card.
For one, all credit cards have the same principle function, but come with varying terms, agreements, interest rates, and benefits for different people. Some of the first credit cards a young adult may encounter are simple credit cards meant for kids in college or who just started working. Reward cards are reserved for those who know what they’re doing and are experienced with using credit cards. Chase is a great company that offers a wide range of these cards, from utilizing their Chase Points rewards to a simple credit card to get you started.
Knowing what type of credit cards are available to you is beneficial in choosing a right one, no matter what your credit knowledge is. Most likely a young adult will be getting a basic credit cad, so there’s some fundamental aspects to know about securing the card, paying for it and using it.
Knowing the Features
Credit cards come with different terms that outline the pricing and benefits of the card. The really important ones you need to keep in mind are the following: interest rates, annual fees, and line of credit.
For every card you’re thinking about filing for, check to see the disclosure in the packet you receive to decide what deal works out best for you. Generally, a low interest rate without any annual fee or low yearly fee are smart choices for a credit card. Sometimes these can’t be negotiated with if you’re a new user to credit, as you’ve not established yourself yet.
Many banks will offer an introductory credit card so that you can begin building credit and prove yourself to be a trustworthy borrower that can accrue more credit in the future.
What to Expect
Credit cards have monthly reoccurring statements if you leave a balance per the month. On top of this they have a billing cycle, which is the number of days between your credit card statements. These run anywhere from 23 to 27 days in between each cycle. Every month your card issuer sends a statement that shows the transactions for the most recent billing cycle.
You’ll have to pay a minimum payment on whatever the balance is. If you haven’t used your card or have no balance, it is unlikely you’ll receive a billing cycle. Always look over your list of transactions to make sure you haven’t been taken advantage of anywhere and everything was charged correctly. Credit Cards are good at looking out for fraud and making sure you’re safe while using their card.
How Credit Cards Function
Credit Card companies make their money by charging fees on their cards and interest. The majority of fees can be avoided by applying to cards that do not have fees, which sometimes can be difficult for new card goers. You can avoid late fees by paying on time or paying off each balance in full every single month. Annual fees are unavoidable on some cards, but they usually give an extra set of perks for more experienced card users.
For newcomers it’s wise to avoid fees completely. The first card will be difficult to get but it is well worth it. If there is any 0% interest offers for financing options or an entire year, then go with some of these. Try not to apply to too many credit cards as these can show up as hard inquiries and have a way of influencing your credit score. You’ll find that after you finally land a card, having a low utilization rate, length of credit and many more properties will contribute to your overall credit score.
Richard Burch is a financial consultant who offers his advice for people whether they are working their way out of serious debt problems, on the road to a first house and/or first baby, or ready to sort their finances out for retirement. His informative articles help people from all walks of life and appear on personal finance blogs.