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What you need to know about credit cards

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Getting a credit card is a huge step in your financial life. A credit card can be a great tool to help you establish a positive credit history, or it can be an easy way to get yourself into serious debt. Here are some things you should know before you get a credit card.

The card may be plastic, but the money is real
Just because your credit card doesn’t look, feel or smell like real money, doesn’t mean that you should treat it any differently. You will be expected to pay the credit card company at least a minimum amount for the purchases you make by a specific monthly date. The consequences of not paying, or not paying on time, can be quite grave. If you make a late payment, your credit card company may choose to charge you a late payment fee. The amount varies from company to company, but it’s important to realize that late payment fees make your purchases cost a lot more.

Late payments, or not paying the minimum balance, can also negatively affect your credit score. Lenders look at your credit score to determine your creditworthiness. If you have a good history of making complete and on time payments, lenders tend to think you will do the same for their institutions. Lower credit scores and unfavorable credit reports can cause lenders to charge you higher interest rates and make it more difficult for you to secure other lines of credit or loans.

It pays to shop around
You don’t need to open an account with the first credit card company that sends you an offer. Instead, you should find the credit card that is best for your needs. That means you should comparison shop for a card that offers you the best interest rate, grace periods, rewards and annual fees. If you are a world traveler and you expect to carry a balance, you might want to look for a credit card that offers a low interest rate and airline mileage rewards. Finding the right credit card for your needs can mean extra perks and less hassle when paying your bills.

Set your own credit card limit
Credit card companies may approve you for a certain spending limit, but that does not mean that is how much you can afford to spend. Regardless of what a credit card company says, set your own limit and stick to it so that you can manage your payments each month. You might even want to restrict what you allow yourself to buy with a credit card. For example, you might allow yourself to use credit for clothes or home accessories that you will use more than once, but pay cash in bars, restaurants and grocery stores.

Remember, making purchases on a credit card can be a great way to start building for your financial future. But it can also be an easy way to be overwhelmed by debt. Start small, plan and know your financial limits.


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