Credit Cards

In this article I will provide all the information you need to know about credit cards, no matter your experience or knowledge with them, in a detailed yet concise manner. Let’s Begin.

The Basics (Beginner’s Knowledge)

A credit card is issued by a financial institution, typically a bank, that allows you to spend money that you may or may not have already (called credit). Based on your credit score and possibly other factors, the issuing institution will provide a credit limit on your account. A credit limit is the amount of money you can charge on the card until payments must be made in order to use more credit. Payments are due monthly with a minimum payment typically of $25-30. However, if you just pay the minimum, you will incur interest after the statement period on the full statement balance.

Intermediate Knowledge

APR Rate

Credit cards are great if they are used appropriately. However, before we move on, you must understand the APR rate on your card, which is the interest rate for the whole year. An example is if you missed a payment on a credit card with a 25% APR, it would start accruing interest daily equivalent to 25% of the balance per year. The daily interest compounded equals the APR. This is why managing payments on credit cards is so important. One way to manage payments is to set up automatic payments from your bank account for the full statement balance at the end of each monthly period.

Rewards

The reason credit cards are useful is because they typically always have a reward system in place that may provide cash back or reward points towards things like flights, hotels & travel destinations. Those with credit card experience may receive 2-5% cash back on nearly every purchase due to acquiring the right cards. This is why learning to use credit cards appropriately can be a good idea for saving money and growing more wealth. For example, even if one is not necessarily a big spender, bigger payments such as car repairs can be paid by credit cards with no annual fee so it is in essence, free money, if used appropriately.

Shopping for Credit Cards

Most people will need their first credit card to be what is called a “secured credit card” because it is difficult to be approved for a regular card with no credit history. Secured cards are credit cards that provide a credit limit typically based on a deposit amount that will be returned.

For those already with a credit score, keep working on it as typically better cards require higher credit scores. Also, be aware of some banks’ marketing tactics and perform diligent research so you can acquire the right cards for your lifestyle.