In the United States, it has become extremely simple to obtain a credit card, so simple you can do it within 5 minutes from the comfort of your home computer or even your phone. For many, credit cards can quickly get out of hand and ruin the financial health of individuals or families. However, if a credit card is utilized correctly it can be used to generate rewards for purchases you are already making. First time credit card users should identify and research the most important aspects of a credit card to them. Teen Finance Tips will help you work to identify these aspects and guide you on the proper uses of your credit card.
Identifying the Best Credit Card
When beginning your search for the right credit card, you must ask yourself a few questions that include what the purpose of the card is and what do you hope to gain out of it. From there, you can begin narrowing your search for the right card. Many individuals will seek out a credit card for rewards or zero introductory interest rates for a large purchase.
There are large selections of cards that cover each need and there are several helpful websites that can guide you through the selection process. Take your time and find the right one for you as it can potentially pay you decently in the long run.
Understanding Credit Card Fees
Once you’ve identified the range of cards you wish to select from, understanding the fees associated is extremely important. The most common fee is the interest rate that is charged on purchases that are not paid off in full within the billing period. Many cards today offer an introductory zero percent rate for the first 6 to 15 months, depending on your card.
Ensure you understand what the rate is if you plan on carrying a balance on your card. We highly recommend against planning to carry a balance regularly on your cards. Especially when you’re just starting out, try not to spend beyond what you can afford to pay back in full.
Another fee some cards charge is an annual fee. While this is less common than it used to be, some cards that offer higher rewards will charge their users an annual fee. This varies greatly and can be found on the corresponding bank’s website as well as their notices.
Other fees to review include balance transfer fees, cash advance fees, and out of country use. Credit card companies disclose their fees, but some are not as prudent about making them easily visible. Ensure you are not blindsided by an unexpected fee and read the disclosures and terms before formally applying.
Paying Down Your Credit Balance
The last tip for first time credit card users is not to carry a balance if possible. When you carry a balance through your statement date, you’ll be charged interest which makes the credit card company money at your expense. While carrying a balance isn’t the end of the world, if continued over several months you will pay substantially more than the purchase price of your item.
Paying the balance will also show creditors you can properly handle debt and raise your credit score, thus making them more likely to lend to you. Payment history accounts for a whopping 35% of your credit score according to the FICO scoring model. This will make obtaining a mortgage or an automobile loan easier if the need should arise.
Having a credit card can greatly alleviate cash flows and enable you to make larger purchases such as an appliance or other home improvement items. With that card comes the need to first, find the right one that will bring you value. Secondly, ensure you are not paying additional fees for services you are not using. Lastly, pay off the balance each month and ensure you don’t let it grow out of hand or end up with missed payments. If you manage these items, you can reap the benefits of having a credit card.