Credit Cards 101: How to Make the Most of Your Wallet

As you round out your financial toolbox, there’s one important asset you don’t want to miss: credit cards. 

Often, credit cards are seen as the big, bad boogeyman of personal finance – we’ve all heard those horror stories about people who wind up in massive debt from credit cards. However, used correctly, credit cards can actually help you reach your financial goals more efficiently.

Let’s explore the three most common types of credit cards you should have on your radar, as well as how to apply for a credit card and other basics every borrower should know. 

3 Common Types of Credit Cards

It’s projected that there will be roughly 1.25 billion credit cards worldwide by 2023 – a jump from the 1.12 billion just five years prior. 

All these different cards have various benefits, drawbacks and fine-print details, but in general you can expect to find three types of credit cards: student, rewards and low-interest.

Rewards Cards

Rewards credit cards offer incentives to users to borrow more money. The specific rewards vary by issuer, but usually come in two forms: cash-back and travel.

Cash-back cards give users a certain percentage of their spending back. That could look like 1% back at gas stations and 5% back on groceries, for example. 

Travel rewards cards earn users points or miles for their spending, which can then be used for discounted travel expenses such as flights and hotels. These cards are a great option for travelers looking to save some money. 

If you already have a strong credit background and want to enjoy extra perks with your credit card spending, a rewards card could be the right choice. 

Low-Interest Cards

A low-interest card is exactly what it sounds like: a credit card that offers lower interest rates. You may even find low-interest cards that offer a 0% annual percentage rate (APR) for the first year. APR is the interest rate you’ll pay on any balances that are carried from one month to the next.

There are a few reasons these cards might appeal to you, like if you want to pay off debt and the credit card interest rate is lower than the rate you’re currently paying on the loan. Some people also opt for low-interest credit cards to help pay for large purchases rather than seeking a conventional loan. 

Student Cards

Student cards are geared towards college-aged adults who don’t have much history with borrowing money and may not even have accrued any credit history yet. Contrary to the name, you don’t actually need to be a student to qualify for these types of cards.

A student card usually won’t come with all the bells and whistles – you won’t find many boasting rewards or other incentives. You should also expect a lower borrowing limit. The tradeoff is that student cards are easier to qualify for than traditional credit cards.

If you’re looking to build credit and borrow small amounts of money, a student card could be a great option to get your feet wet in the world of credit.

Whichever card type most appeals to you, it’s important to do your research and read all the fine print. 

Credit Cards Applications

Applications for credit cards go directly through the card issuing company. However, you should expect a hard credit inquiry each time you fill out an application. 

Too many hard inquiries in a short period of time can hurt your credit score and seem fishy to lenders. Instead of applying for every credit card in sight and hoping for the best, do your research and choose one or two that really make sense for your situation. 

Credit Card Basics You Need to Know

Before you jump into your first credit card, there are a few other simple tips and warnings you should know:

  • There are fees associated with credit cards beyond APR, like annual fees, late fees and foreign transaction fees. It’s important to know which fees you should expect to pay before signing on the dotted line.
  • A great rule of thumb for beginners is to never borrow more than you can afford to pay off immediately. If you charge an expense to your credit card, put it in your budget as though it’s already spent from your checking account. 
  • Just as credit cards can build your credit, they can also ruin your credit. It’s important to always make your payments on time. Even better, set up auto-pay so you never forget to make a payment.
  • Just because you can spend your full limit amount, doesn’t mean you should. Try to keep your credit utilization under 30% as much as possible. 

In many ways, credit cards are an essential part of a healthy financial life – they show lenders how trustworthy you are when it comes to borrowing and paying off debts. Plus, credit cards can earn you perks and rewards along the way. 

Whether you’re in search of your first-ever credit card or just trying to boost your borrowing knowledge, these tips will help keep your wallet and credit score happy

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