10 Things You Should Know About Credit Cards
And some other basic facts to help you make healthier choices
1. Credit Limit Is Determined By…
Generally, your credit score and history will determine how much credit you’re eligible for. If you have good credit, you will have better opportunities.
When I got my first credit card, I didn’t have a bunch of credit history, but I had a legit credit score, so I was able to access stellar credit opportunities.
The lower your credit score, the less access you have to better interest rates and credit limits.
2. Avoid Late Payments
Guess what happens when you don’t pay your credit card bills on time? It's reported to the credit bureaus. They say it takes about 30 days after you miss a payment for it to be reported, but I wouldn’t take the risk.
Always pay your credit card bills on time to keep a good flow of credit opportunities.
3. Pay Your Balance In Full Monthly
The best way to avoid late payments is to set up automatic payments. Set this up as soon as you can access your credit card account.
4. How To Avoid Paying Interest
Interest is how credit card companies make their money. Guess what happens if you don’t pay your credit card balance by the end of each statement period? You’re going to be paying interest on whatever amount you spend. And this means if you bought something for $100, you’ll pay even more if you decide not to pay your credit card bill in full.
5. Avoid Minimum Payments
If you decide to carry a credit card balance, pay more than the minimum payment so you don’t pay significantly more than your original purchase.
For example, if your credit card balance is $1,000, you could end up paying $200–300 or more, depending on your interest rate.
6. Keep Your Utilization Low
It is best to keep your credit utilization to 30% or less. 10% or less is even better because it forces you to manage your credit card with more discipline and never spend too much. Sometimes, people see their credit limit as pure available cash; this is true, but can you easily pay that whole credit limit back?
10% utilization for a $10,000 credit card is $1,000.
7. Spend ONLY What You Have In The Bank
If you don’t have $1,000 in the bank, you should avoid spending $1,000 on your credit card. Only spend what you have in the bank. Make it a habit to use your credit card like a debit card.
If you don’t got it, don’t spend it.
8. Be Wary of 0% Interest Opportunities
The 0% interest is appealing because you often don’t have to pay interest for sometimes 12–15 months, but once that time period is over, it’s time to pay up.
If you’re not careful, you might max out your credit card or forget about when the no-interest period ends, and then you will be penalized for all of your unpaid purchases.
9. Hard Inquiries
Each time you apply for a credit card or any loan, you will usually incur a hard inquiry, which means your credit report will show that you applied for a loan or credit.
Generally, you don’t want to have a bunch of hard inquiries on your credit report (it looks a bit desperate), and you also want to do your applications simultaneously.
Why? Hard inquiries usually take 1–2 years to fall off your credit report. If you have a bunch of scattered inquiries, they’ll stay on your credit report versus applying for two credit cards and then not applying for any more for a while. And each hard inquiry drops your credit score a little bit.
10. Commit to Education
If you don’t know something, research it to learn about it. Read books, ask questions, watch webinars and educational videos, and educate yourself to make informed choices about your money.
11. Implement Discipline
Credit cards can feel like free money because you don’t have to pay it back immediately, but whatever you borrow, you must pay back.
Spend only what you can afford to pay back, and if you find that credit cards are too tempting and lead to overspending, you should forego them altogether.
Many people don’t function best with access to credit cards, and this is okay. Debit cards work better for them, so they can ensure they only spend what they have. To each their own.
12. Don’t Apply For A Credit Card Just Because
When you’re in college, you get many credit card offers. I think I got them, too, but I never noticed them. College and high school are prime times for people to get credit cards, but this is when you should be extra wary of what cards you sign up for.
Have you ever noticed how many stores have their own credit cards? It’s a smart tactic, but I avoid it. If you sign up, you can get x% off your purchase or some other “great’ benefit. Don’t fall for it. 99% of the time, you don’t need that store credit card, and it’s another pointless inquiry that will appear on your credit report.
Use those inquiries for where it matters most, not on a new single-store credit card.
Other Facts
A credit card billing cycle usually lasts around 28–30 days.
After applying for a credit card, you might get access to a digital version to start making purchases.
On-time payments make up the bulk of your credit score. You will likely have a very healthy credit score if you make on-time payments.
You don’t need ten different credit cards. Usually, 2–4 credit cards are enough. You should at least have more than one credit card in case you lose access to your credit card.
Credit card companies make their money via interest. If you consistently pay your credit card bill on time, the credit card companies can’t make any money off you. So you literally get to borrow money for free if you pay your balance in full every billing cycle.
You can add an authorized user so they can also use your credit card. Sometimes, you can even set limits for the authorized user. Adding an authorized user is a good option if you have good credit and want to help someone else who is a responsible credit card user. Remember that you are liable for whatever they spend. :)
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This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.
They send you credit cards the day you turn 18. A$$holes.