Everybody has their own opinions on credit cards, and that’s okay. You have to figure out what is best for you and your situation. Credit cards can be a very useful tool, but they can also get you into a lot of trouble really quick and encourage unhealthy spending habits if they are not used intentionally.
Credit card companies literally spend a lot of money on research and marketing to encourage you to spend more money. So, if you choose to use a credit card to build your credit, please do it wisely.
Here are the basics
You have two different options. You can just do a regular credit card where they run your credit report and they give you an offer based on your creditworthiness. However, some companies do not allow this option based on your circumstances. In that case, your other option is to get a “secured” credit card.
A secured credit card is where you send the company the money that they allow you to have as a credit limit. So, let’s say that you had a $250 limit, you would send that credit card company $250 to hold as collateral for a certain time frame, usually it’s for a year, so that you can show that you can make good payment history and you’re using that credit card per the terms of that agreement.
As far as choosing the actual card, you want to look at any annual fees that may apply and avoid them if possible. Depending on your interests, you may want a card that has travel perks, or you might prefer cash back so those credit card “point” cover a dinner from time to time. Make sure to read your card agreement so that you understand any fees, due dates, stipulations, and interest rates.
Regardless of the card you choose, they all report to the credit bureaus the same way so the company or card type doesn’t affect your credit score.
Helpful tips to use your credit card wisely
- Put a small bill on Auto Pay (like a Netflix subscription or utility bill). When you get that credit card bill, just pay it off.
- Pay on time. Of course, when you get your credit card bill, you’re going to have a due date. It’s important to pay that bill by the due date, if not sooner. Missing payments on credit cards leads to late fees, a ding on your credit report, and potentially higher interest rates depending on the terms of your agreement.
- Treat your card like cash. I do personally choose to use a credit card because I do like the benefits and features of the card, but I treat it like cash. For example, I use my credit card to buy groceries. When I buy my groceries, I just pay whatever I spent from my bank account right away.
- If you’re building up your credit using that credit card, you want to keep a small balance on the card to show you are using it. (Maybe it’s that Netflix subscription or the utility bill, something small that you can pay that off.) If you show a zero balance on your credit card statement it will reflect on the credit reports that you’re not using your credit, and so it doesn’t help build your credit as well.
- Don’t take your credit card with you. Do not use your credit card unless you plan to do it beforehand and you’re using it wisely. Otherwise, use cash or your debit card. This will help you avoid impulse spending and encourage better spending.
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