Credit Cards 101

By Lucy Ding and Ty Isakesen

Adapted by Nicolette Lamanna

What is a credit card?

 

A credit card can be used to pay for purchases and complete balance transfers.

  • Credit limit – when you first open an account it’ll range from a couple hundred to several thousand

  • When you make a purchase, it shows up as pending and is posted several days later

  • You’ll get a bill every month and you must pay at least the minimum amount to remain in good standing

  • Any lingering balance after the grace period accrues interest, so pay off your cards in full!

Source: CNBC

Important Terms

  • Annual fee: The fee cardholders are charged every year for holding a credit card

  • Late payment fee: When you pay your balance late, this could be up to $40!

  • Foreign transaction fee: When you make purchases outside of the US, you may incur a fee for each transaction

  • Minimum payment: The smallest amount of money you must pay each month to keep your account current.

  • Grace period: The time after the month ends but before you’re charged interest

Should I get a credit card?

 

Don’t get a credit card if you:

  1. Have no emergency fund. An emergency could lead to you missing credit card payments and accruing interest on your debt.

  2. Plan on living beyond your means. A credit card can fund that – but only for a limited time. Afterwards, you’ll end up with lots of fast-growing debt.

  3. Do not have an income. No income means you probably won’t be able to make your payments, which will lead to debt.

  4. Do not have a budget. Budget first! Even if it’s a simple one. Be careful with your credit card and understand it’s not free money.

Pros of a credit card

  • Start building up your credit history (this becomes important for car and home loans)

  • Can be used to get rewards (cash back benefits, airline miles, etc.)

  • If you incur job-related expenses that’ll be reimbursed, credit card make record keeping easier (while still giving you the rewards)

  • Provides an alternate method of payment

Credit Card Types

There are lots of different types of credit cards to choose from, so it’s best to know all your options before applying.

 

Student

Student Cards are designed specifically for college students who are new to building credit. They’re relatively easy to get and often have good rewards.

Balance Transfer

These cards are intended for transferring debt from on card to the next.

Rewards

Rewards Cards are exactly what they sound like, you get rewards for making purchases with the cards!

Business

These Cards are intended for business owners, and generally have higher limits and rewards for business related purposes.

Secured

Secured cards are good for those with no (or poor) credit history. You give the bank collateral, which the bank will then use if you don’t pay off your bill. Easy to open, but require an initial deposit.

Unsecured

Same as the secure card, except without the collateral. Can be hard to obtain or have high interest rates.

Charge

No interest rates and great rewards but must be paid off in full every month at risk of ruining your credit score. Generally hard to obtain and are for people with high credit scores.

 

What Credit Card should I get?

Well, what do you need? Are you a beginner with no credit score? Or, are you more advanced?

  • The type of credit card that you apply for and, eventually, begin to use largely depends on why you want it.

  • For those who are new to credit, it is recommended that you start with a secured card. Once you feel comfortable, you can begin the transition to other types of cards, such as: Rewards and Travel Rewards cards.

  • For college students, there are plenty of great student cards out there with great perks. Generally, it is recommended most students start with one of those.

  • For someone more advanced, charge cards can be a great way to get extra rewards and lower interest rates. Just beware of missing a monthly payment!

Next

Credit Scores