A credit card isn't just a thin piece of plastic that you slip into your wallet; it's a tool that can help you establish credit, gain rewards, and gives you borrowing power. As beneficial as a credit card can be, it is only a great tool if it is used correctly. Before getting your first credit card it's important to understand how it works so you can make smart financial decisions. Read on for helpful tips on understanding, choosing and using your first credit card.
Understand how a credit card works.
When you use a credit card to pay for something, you are borrowing money from the financial institution that gave you the card. The issuer will set a limit for how much money you can spend. Each purchase you make is like a loan that you are expected to pay back, ideally each month. If you start to spend more than you can afford to pay back each month, your debt will gain interest and compound over time, which means you'll owe more than your original balance.
Choose your card carefully.
Choosing a credit card is a big decision. A few factors to consider are fees, interest rates and other card perks, like rewards. Do your research and if you have questions, talk to a trusted financial adviser or someone at your credit union or bank.
Using your credit card wisely.
It's important to watch your spending; just becuase you have a credit limit doesn't mean you have to max it out each month. It can be tempting to purchase items that you can't afford simply because you have a large amount of credit. Although you have the option to pay a minimum amount each month, it's suggested to pay the full amount that you owe. This helps avoid longstanding debt that can gain interest and damaging your credit score (which is partially based on outstanding debt). If you do not pay the full balance each month, it is suggested to not let your balance get over 50% of your credit limit in an effort to not harm your credit score.
To avoid late fees, you'll want to make sure to pay your credit card payment on time. Late payments convey that you are not responsible, and this will inevitably lower your credit rating, which could prevent you from accomplishing future plans like buying a home or getting a loan for a car.
A credit card comes with big responsibility, and if you use it right, great benefits (like rewards, improved credit score, & more). When you're ready for your first credit card
, be sure to check out our full lineup of credit card offerings
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