Credit Cards: A Guide

Because a couple people reached out to me and told me that my other posts about saving and financial literacy were helpful to them, I’ve decided to write another for ya! As a college student, I’m around a lot of talk about finance. Whether it’s someone complaining about how they only have $3 to their name or someone opening a tab at the bar with their parents’ credit card, it’s always around. Unfortunately, I was never given a credit card from my parents (but Dad, if you’re reading this, feel free to issue me one whenever you please!). So, I applied for my own as soon as I turned eighteen. Thankfully, I was well informed about the nature and dangers of credit cards from a young age because of my experience working at a credit union, the finance classes I took in high school, and competing in banking competitions (yeah, you better believe I was that nerdy).

A lot of my friends and peers don’t have the knowledge of financial literacy that society expects them to, so they find themselves getting into trouble with money. Unless you go out of your way to take a class about it, you aren’t taught about things like tax forms, different options for bank accounts, investments, loans, leases, or credit cards in high school. So, I’m here to break it down for ya to make your life a little easier!

When you’re issued a credit card, you’re given a maximum limit that you can spend. The credit card company chooses this limit by looking at how much money you have (including your debts), and how much money you make. It’s normal for a younger person to have a lower limit, with the opportunity to work your way up to a higher limit once you’ve had and used your credit card for a while. An example of a low limit is somewhere between $500 and $900. When I first got mine, the limit was on the lower side to start, and the interest was high. Some people might be frustrated by a low limit, but it’s really a saving grace. Millennials have a reputation for spending impulsively, so a low limit saves you from racking up a credit card bill that you can’t pay. When you don’t make your payments on time or in full, you’re required to pay interest. A normal to high rate of interest for someone applying for their first credit card is roughly 20%. This means that, with a 20% interest rate, if your credit card bill is $150, and you only pay $50 by the time it’s due, you’ll be paying not only the $100 that is left on your bill, but also another $20 on top of that. Now, having to pay any more money than necessary is a thought that makes my stomach turn (reasons why I buy any and everything I can at Walmart and the dollar store).

So, here’s what you do. Of course, refraining from using your credit card at all is the best option. Ideally, you’ll only use it for emergencies, but I understand that isn’t very realistic. I don’t only use mine for emergencies, either. Here is the most important thing you’ll need to know in getting your first credit card, something credit card companies would never say to you: do not spend it if you do not have it. If you’re buying something for $100 at the beginning of the month, and you know your paycheck is going to be $400, you’re all set if you’re planning on using that money to pay off your credit card bill. However, if you don’t know how much money you’re going to have when your bill is due, I don’t recommend spending freely and buying whatever you want. Just because your limit is $800, doesn’t mean YOU have $800 to spend. Remember, a credit card isn’t a way out of spending money at all, it’s just a way to deter the bill. This brings me back to a point I made in a previous post; if you have the money now, you might as well buy it now, because you don’t know what expenses will pop up in the future. This is also a good way to ensure that not all of your expenses/bills will have to be paid at one time.

A great way to avoid being late on your bill (or forgetting about them altogether) is by setting up automatic payments. Your credit card issuer will probably have a mobile app, which will make your life so much easier. You’ll have the option of connecting your bank account with your credit card, and you won’t have to think about it again. Or, if you’re a little shaky about automatic payments (like me), just set a reminder on your phone before they’re due, and simply click “make a payment” in your app whenever you know you have a balance! The best way to stay on top of your credit card bill is to pay it as soon as the charge hits your account. For example, I use my credit card to pay for my gym membership. If I know the charge is coming around the middle of the month, I’ll look for the charge in my app and pay it as soon as I see it show up (rather than waiting until the end of the month for my bill’s due date).

Credit card debt can be dangerous, because it can happen so quickly to anyone. However, if you’re able to organize your payments and get into a routine that works for you, you won’t have a problem at all! In fact, you’ll probably do a great job of building credit for yourself. For me, my credit card has been a great resource. I applied for a student one (of course, I’m always preaching about those student discounts), and for every dollar I spend I earn cash back in ‘credit card rewards,’ which are redeemable for cash. Because of this, I use my credit card for big purchases to get the rewards, then immediately pay the bill off. (Reminder: you don’t have to wait until your bill is due to pay it, you can’t pay it any time!)

If you have any more questions about credit cards that I didn’t answer, feel free to contact me! Also, if you’re looking for more banking posts like this one, let me know and I’ll be happy to keep them coming!

Thanks for reading, XO


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