- Share This:
- share via email
Obtaining your first credit card is an exciting moment. Once you have the card, you can enjoy the convenience of charging purchases while building a responsible credit history and working toward a higher credit score. However, there are a number of important steps to take before applying for your first card. Lots of credit cards are on the market, so you’ll want to find the right one for you. You should also be ready to manage your card responsibly.
Technically, you can charge up to the amount of your card’s credit line, also called credit limit, but that doesn’t mean you should; experts generally recommend using less than 30% of your credit limit.
Every month, you will receive a statement that lists all of your charges and the card’s balance. You will also see the minimum requested payment, which is the lowest amount you can pay that month to keep the account in good standing. That payment is calculated either based on your interest rate and balance or as a fixed amount, if the amount you owe is small.
They are listed on the application form and include credit card information such as:
If the credit card has a grace period, you can avoid interest charges as long as you pay the entire balance in full by the due date. However, any unpaid balance carries over to the next month, with interest.
Interest is expressed as an APR, which stands for annual percentage rate. That means interest is calculated on the amount you charged as well as the interest that’s been added the previous month. Paying only the minimum payment can get expensive, and it can take years to get out of debt.
For example, let’s say you charge $1,000. Assuming a 25% APR payday loans Vermont and 3% minimum payment, you would need 11 years to reach a zero balance, and you’d pay $1,499 in interest. That same $1,000 balance that you pay over two months will only cost you a little over $31 in interest.
“The statement has a section that tells you how much interest will cost you if you only paid the minimum,” Robinson-Jones says. “Pay attention to it. As you’ll see, finance charges can be half of the minimum payment.”
– APR. A card may have different APRs for purchases and for cash advances (taking money out of the account instead of using it for purchases). If you pay late, you might face a higher penalty APR.
– Fees. Typical fees vary by card but can include an annual fee, late fee, over-limit fee, foreign transaction fee and cash advance fee.
– Payment policies. This covers details such as how the payment is calculated, as well as grace periods and due dates.
A month’s worth of interest charges may not be so bad, but for credit cards, interest compounds
– Rewards. If the card allows you to earn rewards as you spend, the rate, value and redemption information will be listed.
You consent to the terms and conditions when you get the card, so research the card you’re interested in to know what they are in advance.
Aside from knowing how a credit card works, you need to know whether you are prepared to be a responsible credit card owner.
You can apply for a credit card in your own name when you are 18 years old. If you’re younger than 21, you’ll need to prove that you have an independent income source. In lieu of that, you’ll need a co-signer with good credit who meets the age requirement.