Credit cards are just one of many valuable tools that can help you build financial success. The point that most young people miss though is, with great financial power comes great financial responsibility. Here are (in my opinion) the five most important things to know about credit cards:
1. Your interest rate
For a formal definition, click here. The lower your interest rate, the better. Keep in mind that interest rates can change, but your lender will always send you a notice in advance, so read your mail.
2. The day of the month your payment is due
You can set up automatic bill payments online through your checking account. If you are uncomfortable with that, set an alarm on your phone, write it on your calendar, or tie a bow around your finger. Whatever works, just don’t miss this date because it will cost you in late payment fees, possible increased interest rate, and may go against your credit report, lowering your score.
3. Carrying a balance will cost you
For example, if you charge a $1000 computer on a credit card with an APR (Annual Percentage Rate) of 17% and made the minimum payment due each month, you will end up paying close to $2000 total for that computer. Yikes! Luckily, credit card companies now have to show you how long it will take you to pay off your balance if you were only to pay the minimum balance. Check out this article for details.
4. Teachers aren’t the only ones giving you grades
The Credit Bureaus give you a grade based on how well you pay back your debts. If you make late payments, your credit report will show that and warn future companies that you may be a higher risk to loan money to. To learn more on what a credit score is and how it works, click here. Having a credit card and paying it off on time can help you build good credit, get a better interest rate on a car loan, mortgage, other credit cards, or even your first apartment. A bad score can end up costing you thousands in higher interest rates. Make sure you monitor your credit report to check for inaccuracies which can go against you as well.
5. Credit cards come with perks
There are nearly 1,000 different credit cards in the US alone. Some have better interest rates. Some offer cash back. Be sure to shop around and commit to a card that is going to be right for you. Credit cards can make your life a lot easier, or can send you into a mountain of debt, it’s all in how you use them. When you turn 18, the credit card companies will try to get you to sign up for a card, so remember these things before signing on the dotted line. Always check the interest rate, know when your payment is due, pay it on time, be careful carrying large balances, monitor your credit report, and find the right card to fit your needs. What other tips do you have about credit cards that I didn't talk about?
All credit is subject to credit approval.