Interested in getting a credit card? Here are some good things to know!
What you should know
Equifax, one of the three major consumer credit reporting agencies in the United States, generally recommends that most people have two to three credit card accounts at a time, in addition to other types of credit. However, they stress that what’s more important than the number of cards is how you use them. Experian and TransUnion are the other two major credit bureaus.
important Credit Card Questions
- Do I need this card? Credit cards are commonly used secure forms of payment. They offer the opportunity to finance things and build credit history. But, before applying for one, decide if you really need it. Note that there are pitfalls to having and using credit cards. Mainly, opening a new credit card results in a pull on one’s credit. This can lead to a slight decrease in credit score, the numerical expression that represents the creditworthiness of individuals. To discover what offers you are eligible for, check your credit score. Cards should fit your credit situation. For example, ask, am I looking for a card that helps to fix my damaged credit or one that saves money on interest?
- How is my credit score? Credit scores should be checked before applying for new cards. Credit card issuers often give cardholders free FICO scores (a type of credit scoring model.) Note that people should review their credit reports frequently to spot errors or fraud and to understand what lenders see. Familiarity with credit scores helps people decide if it makes sense to apply for a new card. Lenders typically like to see a variety of credit types on credit reports. Experian explains, “Having multiple credit cards indirectly impacts your credit scores by lowering your debt to credit ratio – also known as your credit utilization rate.” They share that a rate higher than 30 percent may negatively impact credit score.
- What are the terms? Not all credit cards are the same. They carry different annual fees, percentage rates, late payment fees, balance transfer costs, cash advance charges, credit limits, grace periods and so forth. Some credit cards offer fixed purchase APRs, while others have variable ones that fluctuate. APR refers to the annual percentage rate borrowers are charged. It is essentially a measure of the interest rate and additional fees charged with a loan. APR is affected by credit score. People with poorer credit likely have credit cards with higher APRs, and people with solid credit tend to have cards with lower APRs. Variable APRs tend to change with the index interest rate and are also based on the cardholder’s agreement. Before jumping in, do your homework and understand credit card offers to include costs and terms. This helps borrowers avoid high interest rates and fees and rest comfortably with credit card decisions. Whenever possible, choose cards that deliver high rewards.
- Am I responsible? Opening a credit card increases the amount of credit available to you. As a benefit, it can bump up your credit score. However, credit cards can lead to overspending by undisciplined cardholders. The inability to pay balances due on time can ultimately have a negative effect on one’s finances and credit score. Not only must borrowers pay interest and fees on balances due, but having more open credit increases the risk of long-term debt. One must truly behave responsibly when it comes to spending on credit cards. Setting spending limits, keeping cards long term while only using a small percentage of available credit, limiting new credit applications, and regularly bringing the card balance to zero generally demonstrate financial stability.
- Can I meet my monthly obligations? It’s important that every month people pay what’s due on their credit cards. Payments must be made on time to guard credit score. It is also optimal to pay the balance in full rather than simply meet monthly payments. The action of paying in full serves to improve credit scores, which increases financial trustworthiness. It also avoids borrowers’ needs to pay interest, a fee charged by lenders to those borrowing money. Credit card debt can influence credit card terms, so it’s important to understand the consequences. Paying in full helps people avoid accumulated debt. Accumulated credit card debt is bad because it hurts borrower credit scores and overall finances. Having too much debt makes it harder for people to meet financial obligations. Thus, it can put a strain on day-to-day living. So, strive to be smart and not run up balances.
Credit Card summary
Credit cards are useful tools that help people buy things and build credit history. However, accumulated outstanding debt can be dangerous and wreak havoc with personal finances. When applying for a new credit card, one is advised to carefully review the terms of agreement. Also identify the benefits of credit card ownership and how it relates to credit score. Recognize that one must be responsible for making payments on or before the due date and pay in full whenever possible. Strive to spend responsibly and resist overextending one’s credit so that financial obligations can be adequately met. It’s beneficial to keep an eye on account balances and credit score to ensure accuracy and to know where you stand.
This article is purely informational and is not intended as a substitute for professional financial advice.