Credit cards are a financial topic that tends to spur both positive and negative conversation. If you’re new to the realm of credit cards or you simply want to understand them better, you’ve come to the right place. Here is everything you should know about credit cards before you start using them to ensure future financial success.
You Must Repay the Money You Borrow
Credit card companies can offer you a set amount of money that you can borrow, which is considered your credit limit. You can harness as much or as little of that credit limit as you see fit. If you pay the balance owed on your credit card statement by the due date, you don’t owe any additional funds. However, if you have a balance on your credit card past the due date, you will be charged interest at the APR that was specified in your operating contract.
The Higher Your Credit Score, the Better Your Credit Card Options
One key factor that can drastically influence the credit card offers you receive is your credit score. Credit card providers want to know that they can count on you to fully repay the money you owe. This is why they only offer the best credit cards to those who have shown they can effectively manage their credit by receiving a high credit score. A credit card with no annual fee, a low APR, and high rewards is considered the best you can ever get.
Credit Cards Can Build Up or Ruin Your Credit
According to the experts at SoFi, “Credit cards are used by some as short-term loans and, if you pay your balance each month by the due date, it’s essentially a no-interest short-term loan”. Having a credit card for a long time and always making on-time payments is a great way to build up your credit. Credit cards can be the perfect solution to enhancing your credit score. However, they can also be detrimental to your credit score if not used appropriately. Making late payments and continually carrying a high balance on your credit card can drastically reduce your credit score.
Know the Rates and Fees Before Accepting a Credit Card
Whether you’ve received an offer in the mail or you’ve applied for a credit card online, the issuer should provide you with their rates and fees. You want to pay particular attention to what these are because they can significantly impact how and why you use your card. Specifically, you want to know if there is an annual fee, the APR, late fee, and foreign transaction fee.
Some credit card companies charge their cardholders an annual fee to have the privileges of using their card. You’ll get billed this when they issue your credit card and every year after. Your card APR is going to be the interest rate that you’re going to be charged if you have a balance on your card. A foreign transaction fee is a percentage of a purchase price that you’ll be charged when using your card to make purchases outside of the United States.
Credit cards can be a great financial asset when utilized correctly. By understanding the information that we presented above, you’ll have the knowledge you need to be successful with credit cards going into the future.