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Credit Card Basics for Beginners

Capitol Federal® Millennial Blogger Image
Okay, fellow 90s kids, if you haven’t already started building your credit score, now is the time to do it. Credit scores are how banks, landlords and other lenders know you’re able to pay back money you owe. A good credit score is necessary if you’re making a big purchase that requires a loan, like a house or a car. I know the concept of credit can be intimidating, so I’m here to tell you everything you need to know about getting a credit card and maintaining a good credit score.

Applying for a Credit Card

  1. Research and apply for a credit card that best fits your needs. 

  2. Be sure to research any requirements a credit card provider might have before submitting your application. Some require you to already have established credit, so it may be best to steer clear of applying for those until you’ve built up your credit score. 

  3. Consider not applying for too many credit cards at once because that may result in several inquiries on your credit report. This also means you should be careful about accepting every store credit card offer you receive at the checkout. (Been there, done that. Lesson learned.)
Know Your Credit Limit - and Don't Go Over It

Once you receive your new credit card, you may be tempted to go buy something right away with your newfound “money,” but don’t be too eager. For newbies, most providers set their limits around $500 or $1,000. An experiment done by Experian found that one-third of millennials didn’t even know their credit card limit and 30 percent had maxed out a card. Remember your credit card limit and remember how much you've spent. 

Always Pay Your Full Bill at the End of Each Month

There are two reasons why you always want to pay your bill in full: 

  1. It keeps your credit score high which is what you want. 

  2. It keeps interest from accumulating on unpaid payments. 
Basically, if you only pay half your bill, the unpaid half sits gathering interest, increasing your debt. Say you have $100 in debt because that’s what you couldn’t pay off from your bill, and it accumulates 10 percent interest every month. For your first month in debt, you’ll be charged an extra $10 (100 x .10), so now you’re $110 in debt. If you don’t pay that off in the next month, you’re again charged 10% interest, but this time on $110, so your debt for that original $100 will total $121 in just two months. You can see how quickly the debt accumulates. It’s also important to pay your bills on time. Late payments really hurt your credit score.

The goal for someone new to the credit world is to prove you are a good risk. Use your credit responsibly and you’ll start to establish a good credit record which can help you be approved for loans down the road. Go forth, build your credit score, and rule the world.

Have you received any good tips from friends and family about credit and credit cards? Share them here.

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Categories: Smart Spending, Strategies for Saving

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