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Beginner’s Guide to Credit Cards

The credit that you and I can obtain through a card or credit line allows for the purchase of goods/services as well as the borrowing of money with the requirement that this money is repaid at a later date. Establishing credit is important for the majority of large transactions that you can make in the country. Whether you want to purchase a car at a dealership or are looking to buy a home, having a high credit score heightens the possibility that you will be able to obtain a loan that comes with low interest rates and a relatively low monthly payment.

The only way that a good credit score wouldn’t be needed is if you had enough money to purchase a card or a home outright, which would eliminate the need for a loan. Many people choose to build their credit with a card, which allows you to open a line of credit while also making payments that increase your credit score over time. If you’ve never applied for a credit card before now, this guide should tell you should know pertaining to how these cards work and what they can do for you.

How A Credit Card Works

These cards are paired directly with a credit account that’s held by a bank. When you purchase items with this card, you are borrowing a certain amount of money from the bank that issued the card.

If you don’t understand how a credit card works, you will likely find yourself making mistakes when you apply, which only serves to worsen your credit score. Every credit card has limits to how much you and I can spend when using the card, which is referred to as the maximum balance. Keep in mind that using only 30 percent or less of your credit limit should bolster your credit score, which means that you should avoid spending anywhere near the maximum limit before you pay off some of what you owe.

When you apply for a loan, you’ll be provided with a fixed amount of money that you can borrow, which will be repaid over a certain period of time. As for credit cards, they provide you with a line of credit that will last for as long as you have the credit card. If ever you reach the maximum balance for your card, all you need to do is pay off some of this balance, which will allow you to access credit once more.

What APR Refers To

The APR that comes with a standard credit card refers to the annual percentage rate that you will be expected to pay if a balance remains on your account. While some credit card providers offer an APR of zero percent, many affix the cards with a high APR, which you should be aware of before applying for a credit card.

When you obtain a credit card, you will be tasked with making a minimum payment each month for any purchases you make with the card. If you spend $300 in a month, your minimum balance could be $100. When you don’t pay this balance on time, you will incur extra fees until the balance is paid in full. Any balance that remains on your card following the grace period will be subject to APR.

If your total card balance is $1,000, this balance would expand to $1,200 following a single year. Because of the high APR that comes with the majority of cards, you should consider paying off the balance in full every month, which will allow you to avoid the APR interest rates. It’s difficult for people who have never had a credit card before to get one without a high APR. This percentage can reach as high as 25-30 percent, which can cause you to owe a significant sum of money if you don’t make your payments on time. However, card holders who make every payment on time and in full never need to worry about a high APR.

How a Credit Card Should Be Used

While many people assume that a debit card is just like a credit card, there are some restrictions that you should be aware of. These restrictions primary involve the credit limit that will be provided to you, which can increase as time goes on.

These cards can provide you and I with many notable benefits as long as they are used correctly. In order to use a credit card properly, it’s important that you:

  • Always pay your balance in full – If you want to avoid interest charges, it’s recommended that you pay your full balance every month
  • Don’t charge more than you can afford – You should only make purchases with your credit card if you have enough money in your bank account to cover these expenses, which ensures that you are able to at least pay the minimum balance owed at the end of the month
  • Stay below the credit card limit that you’ve been given – If you want to increase your credit score, it’s important that your monthly purchases amount to 30 percent or less of your maximum limit
  • Understand the card benefits – The majority of cards offer cash-back bonuses, purchase protection, and extensive coverage for any stolen items
  • Review every monthly statement – It’s important that you review your statement every month to ensure that you made every purchase that’s listed on the statement, which will help you identify any charges that you didn’t make before it’s too late

What It Takes to Build Credit

Though building credit takes time, there are some easy steps that can help you gradually build credit without needing to worry about too many drops. Making payments on time, keeping a low credit utilization, and opening new lines of credit can help you build your credit score.

Likely the best way to bolster your credit is by making your payments when they are scheduled. Your total payment history is considered by credit agencies to be the most important element that’s taken into account when determining if your credit score should increase or decrease. Making payments before they are due can help you increase your credit score in a relatively short period of time. As a new credit card holder, consider adding some recurring payments to your credit card, which could include your smartphone bill or cable bill. By making these payments every month, your credit score should increase.

It’s also important that you pay attention to your FICO score, which is used by a substantial amount of lenders. While many cards provide members with a tracker for their FICO score, there are many online tools that you can use to check your FICO score for free if your credit card doesn’t offer this option. Make sure that you also keep your balance low. Even though you have a maximum credit limit available to you, credit agencies don’t want people to reach this limit every month. If you do, your credit score will actually decrease.

To actively increase your credit score, only use around 20-30 percent of the credit that’s available to you before paying it off. After a certain period of time, you might want to consider requesting an increase for your credit limit. Your credit card agency may increase credit limits after 9-12 months of on-time payments. You should also keep all of your credit card accounts open if possible. Your oldest account is used to determine your credit history. However, the majority of banks will close a credit card account if it hasn’t been accessed for at least six months, which only serves to worsen your credit score.

Things That Can Damage Your Credit

It’s easy to damage your credit if you’re unsure of how to properly use a credit card. For instance, even a single late payment will cause your score to drop by a significant amount, which can take time to mend.

When taking your payment history into account, your score could be worsened by missing a payment, filing for bankruptcy, not having a credit card in your possession, having errors on your credit report, and refinancing your home. For credit utilization, going above 30 percent of your credit limit can start to hurt your credit score. Before you send in an application for a card, make sure that you perform extensive research so that you can be fairly confident that your application will be approved.

When you apply for too many cards in a short period of time, your credit score will drop. Before a credit card agency can grant a card, they must conduct a hard inquiry on your credit history. Having more than six hard inquiries can lead to drops in your score. However, these inquiries will only count towards your credit score for a period of 12 months and will only show up on your credit report for 24 months.

Best Card Options Available to You

The best credit card for you depends on your specific needs. While a beginner credit card won’t provide you with many perks and features, it will give you the means to begin strengthening your credit.

Even though a beginner credit card doesn’t typically come with many features for you to take advantage of, there are some basic perks that you should be on the lookout for. Since you’ll likely want to keep this credit card for a long time, look for one that comes with no annual fees. If you forget to pay these fees one year, your card will be closed without further explanation or recourse. As touched upon previously, some cards will also offer a tracker for your FICO score, which can come in handy if you want to remain up-to-date about any changes in your score.

If you decide to apply for a secured card, make sure that this card comes with a low security deposit. While higher deposits will provide you with a higher credit limit, it’s recommended that you choose a card with a security deposit of around $200 or less. Over time, the bank behind the credit card will likely increase your credit limit. You should never pay a substantial sum of money just to obtain a credit card. Another consideration to take into account when choosing a beginner credit card involves the rewards that the card comes with. While beginner cards are designed mainly to increase your credit score, there’s no reason not to select a card that comes with rewards if you can find one.

When to Select a Credit Card

While practically everyone should have a credit card to help maintain their credit score, there are specific situations where a credit card can be particularly beneficial. These situations include everything from building credit to the rewards you can obtain.

While there are a wide variety of things that you can do to strengthen your credit, obtaining and making purchases with your credit card is by far the easiest method of doing so. Having a short credit history may adversely affect your livelihood in numerous ways. For one, it will be much more difficult for you to be approved for a loan without having a good credit score and lengthy credit history. If you file a rental application for a home, this application could be rejected as a result of you not having a credit history. Car insurance rates can increase as well in certain states.

Credit cards are also considered to be much more secure than other forms of payment. If you notice that a fraudulent charge has been made to your card, the card issuer will automatically remove these charges when you contact them, after which they will provide you with a new card to use. In the event that credit card fraud occurs, your legal liability will be no more than $50. The majority of card issuers make sure that card holders are never liable when fraud occurs. Finally, a credit card can provide you with extensive rewards when compared to other payment methods. These rewards include everything from travel points to cash back, which means that you’ll earn rewards for every dollar you spend.

How a Credit Card Differs From a Debit Card

Many people find themselves confused over the differences between a credit card and debit card. While you can make the same purchases with both card types, the different functions that they have are important to know about before you use either card.

Primary Differences

The main difference between these two card types involves the type of financial account that each card is linked to. For instance, debit cards are linked directly to a bank account, which will typically include a debit account and savings account. On the other hand, a credit card links directly to a line of credit that’s considered to be revolving, which is issued to you by a bank. When a credit transaction occurs, the issuer of the card will make the initial payment under the belief that you will repay them later on. Any debit card transactions take money directly from your debit account, which means that you can’t spend more than you have.

There’s also a significant difference in how fraud is handled with these two card types. When a fraudulent charge appears on your card, this charge will be removed immediately when you contact the card issuer. It’s also important to note that you likely won’t be required to pay any money for these charges. When fraud has occurred with a debit card, the banking institution must complete a thorough investigation before they are able to reimburse you. Keep in mind that these investigations can take weeks.


The primary similarity between a credit card and debit card is that they are both linked to a financial account of some kind. They are also used in the same manner for any physical transaction that you make. Both credit and debit cards are inserted or swiped within the same card reader. Whenever you complete an online transaction, the information from your debit card or credit card is typed into the same area.

Credit Score

Your credit score is affected by the purchases you make and any payments you provide when using a credit card. However, debit cards have nothing to do with a credit score. Since using a debit card doesn’t help to increase a credit score, many new credit card holders will switch some of the recurring payments they make with their debit card over to their new credit card.

What You Should Know About a Secured Credit Card

Along with the standard credit card and debit card options, you can also apply for a secured credit card, which is common for new card holders. A secured credit card differs from a standard credit card in that it requires a security deposit to be made, which helps to mitigate some of the risk that the card issuer takes on.

These cards are usually selected by individuals who have a poor credit history or a limited one. If you’ve never had a credit card before, you may find it difficult to be approved for an unsecured credit card, which is when you should consider applying for a secured one. Keep in mind that the deposit you make serves as collateral, which you will likely get back after a period of six months or so. In most cases, your security deposit will serve as the exact credit limit that you have. If you provide the card issuer with a security deposit of $300, this will also be your max credit limit. This limit can typically be increased after 6-12 months have passed.

Relevant Credit Card Terms to Be Aware Of

To be as informed as possible before you apply for your first credit card, there are numerous credit card terms that you should be aware of. The most important terms for these cards include:

  • Credit card – A card that’s linked into a credit account and can be used for both physical and online purchases
  • Secured card – A card that involves paying a security deposit in order to open it
  • Unsecured card – Security deposits don’t need to be paid with this form of credit card
  • Balance transfer – A feature that allows card holders to transfer the balance of one credit card over to another credit card that has a reduced APR, which is a feature that’s not available with all cards
  • Credit limit – The max balance that a credit card has, which could be anywhere from a few hundred dollars to tens of thousands
  • Cash advance – The ability to get immediate cash through your credit card, which is a feature that usually comes with high interest rates and annual percentage rates
  • Line of credit – Provides a certain amount of money that’s available to you as long as your account remains open, which indicates how much money you can borrow
  • Available credit – The overall difference between the current balance on your card and the credit limit, which means that the available credit is the amount of money you can still spend with your credit card
  • Minimum payment – The amount of money you and I need to pay before the due date to avoid any extra fees and expenses
  • Statement balance – Amount of money that you’ve charged to your credit card and have yet to pay
  • APR – An annual percentage rate that’s linked to your credit card and dictates the cost of borrowing money
  • Credit score – A basic number that indicates how likely you are to repay money that you borrow

Credit cards are highly beneficial for any adult who wants to be able to quickly and easily increase their credit score. By increasing your credit score with a card, you should be able to purchase a car, buy a home, and apply for any type of loan. While the beginner card you choose may not be equipped with numerous rewards and features, improving your credit score will eventually allow you to gain access to even better cards. Have you recently applied for one of these cards? If so, tell me about your experience in the comment section below.