There's a lot to know about credit and ignorance can prove to be extremely costly to your pockets and your credit score. It helps to know at least the basics about credit, even before you get your first credit card.
Understanding how credit and credit cards work helps you make the
right decisions about choosing and using your first credit card.
Know the different types of credit card.
Even
though credit cards have the same shape and size, they don't have the
same terms and conditions and they're not all meant for the same type of
credit card user. Some types of credit cards include standard or
plain-vanilla credit cards that have no frills, student credit cards
meant for young adults in college, rewards credit cards intended for
more experienced credit card users, and secured credit cards for those
who can't qualify for a traditional credit card. You'll be more likey to
choose the right credit card if you know the types of credit cards on
the market.
Credit card features should influence how you choose and use it.
Interest
rate, annual fee, and credit are just a few of the important credit
card features. For each credit card you consider, make sure you read the
credit card disclosure which details the credit card features.
Comparing different credit cards to each other will help you see which
credit card features are better. In general, low interest rate and
annual fees are most ideal, but not always possible when you're just
starting out.
Expect a credit card statement every month.
A credit card billing cycle
is the number of days between your credit card statements. Billing
cycles are typically between 21 and 29 days. Each month your credit card
issuer will send a statement that details your transactions for the
most recently completed billing cycle. If you have an outstanding
balance, then you're required to make a minimum payment toward reducing
that balance. You might not get a billing cycle if you haven't used your
credit card in several months.
Most credit cards come with fees.
Credit card companies make money by charging fees and interest. You can avoid most credit card fees
by making different decisions about the credit card you apply for or
the way you pay your bills. For example, you can avoid a late fee by
making your credit card payment on time. You can avoid a finance charge
by paying your full balance every month. If your credit card has an
annual fee, you may not be able to avoid it.
The first credit card might be hard to get.
Credit
card companies aren't always willing to give credit cards to first-time
credit card users. Knowing where to apply for your first credit card
will protect your credit score - if you have one - by keeping credit
card applications to a minimum. If you're repeatedly denied for credit
cards, even retail store credit cards, then consider a secured credit
card. You'll have to make a deposit to get the credit card, but if you
use it responsibly, you may qualify for a traditional credit card after
12 months.
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