November 25, 2016 Credit Building and Repair

Cash is comfortable – it’s easy to track and make sure you’re not overspending. However, using all cash all the time means you’re not building up a credit history. And that means it will be harder for you to rent an apartment, take out a car or home loan, or even get a cell plan! One great way to flesh out your credit history is to get a credit card.

There are a lot of benefits to having a credit card. You don’t have to worry about carrying cash and you may get rewards or deals associated with the card. But there are also drawbacks. Most importantly, you could lose track of your spending and end up in credit card debt. The trick is to manage your card wisely so that you can build up your credit and take advantage of the perks of having a credit card without letting it get out of control. These are a few helpful credit card tips to get you started on the right foot with your credit card!

1. Choosing Your Credit Card

 Have you ever received one of those credit card offers in the mail? They may say that you’re pre-approved or just invite you to apply. But you shouldn’t just sign up for any old card. Different cards have different terms, fees, and rewards, and you should shop around to find one that’s right for you.

Some of the most important things to check are:

  • Fees – Some cards come with annual fees or fees for certain kinds of transactions. Make sure you take a good look at the fees so you don’t have to deal with any surprises down the road. In the vast majority of cases, it’s not worth it to pay a fee. There are a few cards (like high-level American Express cards) that charge fees but come with a lot of perks. However, your first card probably won’t fall into that category.
  • Rates and Rules – All credit cards work more or less the same way. You charge purchases to the card and at the end of the month you get a bill. Pay it in full and you won’t face any extra charges. Pay less than the full amount and you’ll have to pay interest on the balance until you pay it off. The interest rates can be really high, so check those before you commit to a card. Ideally you’ll never have to pay interest, but you should know up front just in case.
  • Perks and Rewards – Nowadays, lots of cards come with perks or rewards. For every dollar you charge (and pay off), you may get a certain amount of cash back, airline miles, or other rewards. Some cards offer a flat rate, like 2% cash back on every purchase, while others offer different rates depending on the purchase. For example, you may get 3% back on gas, 2% on groceries, and 1% on everything else. You’ll need to consider your budget, how you spend your money, and your needs to decide what’s right for you. If you travel a lot, you may want to get airline miles. If you drive a lot, you may want to look for a card with extra cash back for gas.
  • Restrictions – Some cards come with extra fees or restrictions for certain kinds of transactions. The most common one is a fee for foreign transactions. So if you’re going to need to use your card outside the country frequently, consider getting a travel card that doesn’t have those fees.

2. Getting Your Credit Card

There are a number of ways you can apply for your chosen credit card. You could use one of the applications that come in the mail. You can also go into your bank and ask them about it; most banks offer their own credit cards and you may be able to get a better card if you already have an account there. You can also typically apply online. If you go into the bank or apply online, you’ll know whether you were approved within a couple of minutes.

Note that in order to approve your application, the bank or credit card company will do a credit check. That dings your credit score a tiny bit, so you don’t want credit checks to happen often. If you get denied for your card of choice, don’t just reapply – evaluate your credit and consider applying for a card that’s easier to get (usually cards with fewer or no rewards).

If you have low credit or no significant credit history, it can be tough to get approved for a card. If you’ve applied and been denied, consider getting a store credit card. Lots of stores offer them and the requirements are typically less strict than when you apply directly through a bank or credit card company.

If that’s not an option, consider talking to your bank about a secured credit card. With a secured card, you’ll need to put down a deposit as collateral. Once you’ve kept up your payments for a certain amount of time, you’ll be able to get a regular card.

3. Using Your Credit Card

Now you have your card and it’s time to start using it – in a smart way. If you’ve never had a credit card before, it can be really tempting to overspend. Your credit limit (the max you can charge to the card in a month) may be a lot higher than what you can actually pay. So, keep a close eye on your budget. Consider using the card for just one purpose when you start out – buying gas, for example. That will help you avoid overspending and get into the habit of managing your bill.

You may have gotten a credit card for emergency situations, and that can be really handy. However, remember that you need to use your card regularly to keep up your credit. You don’t have to spend a lot, but make sure you use it a couple of times a month.

And every month, pay your bill on time and in full. Otherwise, you’re going to get stuck paying a ton of interest. Your bill will have a “minimum payment amount” on it – usually a small fraction of your total bill. You have to pay at least that much to keep your account in good standing. But don’t fall for that minimum. They want you to pay the minimum so that you keep having to pay interest on the balance. Those charges add up quickly and can easily land you with a balance you can’t manage. Things happen and one month you may not quite be able to cover everything, but pay as much as you can and pay the rest off as soon as you’re able.                           

Swipe Smart

Getting a credit card is a really important step in building your credit history. It can also be a good deal – you may get discounts at some stores or on certain kinds of purchases. Plus, cash back or travel rewards are free money (as long as you pay your full balance every month). The trick is to be thoughtful when choosing your card and careful with how you use it. These simple credit card tips are all you need to be a smart credit card holder! 

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