Credit cards aren’t something to be scared of, but there is a lot of confusion about how they work. If you’re considering getting a credit card, this article can tell you everything you need to know.
How Does a Credit Card Work?
When you use a credit card, you borrow money from the issuer of the card. This allows you to purchase items or services with any merchant that accepts credit cards.
When you borrow money on a credit card, the amount of money you owe is called your balance. Your credit limit is the most you can borrow at one time. Your available credit is the difference between your credit limit and your balance. After you pay off your balance, you have available credit to borrow once more. This is why a credit card is called a revolving line of credit.
What is APR?
The annual percentage rate is the interest rate the card issuer charges on any outstanding balance after your payment due date.
How to Build Credit
When approved for a credit card, it’s essential to use it regularly and responsibly. Here’s how to build credit with a credit card:
Pay your bills: You can improve your credit score by paying your bills on time each month.
Track your FICO® Score: Make sure you check your score every few months to ensure you’re on track.
Keep your credit card balances low: Don’t use more than 30% of your credit limit.
Get a higher credit limit: Once you’ve used your card for nine to 12 months and consistently made on-time payments, ask the card issuer for a credit limit increase.
Keep accounts open: To build a positive credit score, keep older accounts open, and don’t close the first credit card you use.
Don’t apply for several cards in a row: Applying for too many credit cards at once can hurt your credit score.
When choosing a first credit card, consider the following things:
No annual fee: This means you won’t have to pay a fee every year to keep your credit card.
Free FICO® Score tracker: This allows you to monitor your credit score easily online.
Rewards: A rewards credit card helps you earn cash back, points, or travel miles for every dollar you spend.
