Everything You Need to Know About Credit Cards
Getting a credit card can be a stressful or difficult decision. At what age should I get one? Which one should I get? How do I use it responsibly? What are the pros and cons? This article, Everything You Need to Know About Credit Cards, will answer these questions and help you decide if getting a credit card right now is right for you!
Why Get a Credit Card?
Credit cards have many benefits, including:
- Building Credit. You often need to have credit built in order to purchase a car, get a home, and sometimes for getting employed. You can do this by paying off your credit card each month, using only a certain amount of your credit limit, and having a line of credit open—all things you can accomplish with a credit card.
- Earning Rewards. You can actually make money while using a credit card! Most credit cards offer cashback for purchases, which means you get a certain percentage back when you spend money on a certain item or place. This can add up and can be used to take yourself out to lunch or buy something you’ve been wanting for a while! One great option for a cashback credit card is our 4-3-2-1 Credit Card.
- Reducing Liability. If someone steals your debit card, all of your money can be drained. But if they steal your credit card, it is not exactly your money being drained and it is easier to get it back. It is nice to have both a credit card and debit card in case one gets stolen.
- Avoiding Overdraft Fees. If you are using a debit card and accidentally spend more than what is in your account, you will incur a fee, which is usually $24-35. But, you don’t have to worry about overdrafting from your checking account.
- Having Spending Limits. If you are a spender and find yourself always going over your budget, you can set a spending limit! You cannot do this with a debit card.
Getting a credit card early can be a great financial decision because you start building credit and you start learning more about the financial world and how you manage finances. You should get a credit card when you are ready for more financial responsibility and when you want to start planning more for the future, which should be right around when you start college. Before you know it, you will be buying a car and even buying a house! So, now that you know what the benefits are, let’s talk about how to use this new card.
Tips for Responsible Card Practices
Most people in America are in debt, and a lot of that comes from irresponsible credit card use. But, that doesn’t have to be you. You can know how to master using a credit card without experiencing it mastering you.
Here are some tips to using a credit card responsibly:
- Pay your balance in FULL each month. There will be an option to only pay the minimum balance each month on your credit card, which is usually between $15-40. However, doing this means you are constantly in debt and can lead to bad situations in the future.
Instead, it is recommended that you treat your credit card like a debit card and only spend what you can afford to pay back. Paying it back in full every month not only means you are staying within your budget but it means you will never have to pay interest, which can be very high on credit cards.
- Keep your credit utilization low. As mentioned before, keeping your credit utilization low (below 30%) is a great way to build credit and get a good credit score! This means that if you have an available credit line of $2,000, you shouldn’t use more than $600 of that each month.
- Set up automatic payments. To avoid missing a payment, consider setting up automatic payments from your checking account. This takes the stress out of remembering to make payments on time, and also ensures that you won’t get a late fine or have to pay interest.
- Monitor your statement. You should review your credit card statements each month to make sure there aren’t any fraudulent charges. It can also help you be aware of your spending habits.
- Be honest with yourself. If you are consistently spending more than you can pay back, or you are using your credit card in ways that can lead to future debt, you should evaluate if you should keep using it. Stop, evaluate, and make goals and plans for how you should proceed. Maybe that means taking a break, or maybe it means changing a couple habits. Whatever it is, taking time to evaluate can save you headaches in the future.
In addition to these tips, don’t hesitate to talk to trusted family members, friends, or credit union experts. Ask questions, get advice, and get help when needed. Take control of your financial health!
How to Choose Which Credit Card to Get
When looking for the best first credit card, it is important to ask yourself these questions:
- What is the interest rate?
- What are the annual fees, if any?
- What is the credit limit?
- What is the penalty for late payments?
- What are the rewards/points?
Answering these questions will look different for everyone depending on your financial situation and your future goals. Maybe you travel a lot and want a card that has travel points. Or maybe you want one with a high credit limit and low to no annual fee. The best first credit card is generally one with a low interest rate, no annual fees, and great rewards. Check out UCCU’s Credit Card options!
For some, getting a credit card may seem scary. But, with responsible practices and adequate knowledge, having a credit card can be a great financial tool.