Basic knowledge about credit cards
A credit card allows you to borrow money to make purchases. The bank gives you a credit limit , which is the maximum amount the lender will allow you to spend on your card. Often, if you pay your balance in full each month, there will be no charge for using the card. If you carry an outstanding balance from month to month, you will pay interest. The interest rate, known as the APR or annual percentage rate , depends on your credit history and the type of card.
Keep your expenses under control
Lenders want to make sure you don’t spend more than you can afford. A general rule of thumb for building a strong credit history is to spend no more than 30 percent of your credit limit. If you normally use your card to pay for purchases that aren’t within your budget, you may suddenly use all your available credit. best use of credit card for planned purchases, give yourself time to shop for the best deals, and make sure you have a plan to pay for it before you make the purchase.
pay on time
Missing or having a late payment even once can have serious consequences. May result in late fees, interest charges, and in some cases, a higher APR. On top of that, late payments can have a negative effect on your credit score, which can hurt your ability to get loans at favorable rates in the future. You may be able to set up automatic payments through your bank’s website or mobile app to ensure you pay on time.
Pay your balance in full
The best strategy to avoid accumulating debt is to pay off your balance in full. But if you can’t, paying more than the required minimum payment will lower your outstanding balance, which can save you money in interest charges. Depending on your balance and APR, maximizing your monthly payments could save you hundreds or even thousands of dollars in the long run.
quick tip
If you can’t pay your balance in full, you can reduce interest charges by making your payment as soon as possible. This is because the interest charge is based on your average daily balance during the billing cycle. Paying early in the cycle decreases that average balance.
Check your credit card charges frequently
It’s a good idea to keep track of your credit card purchases. Most banks offer online banking and mobile apps with features to help you manage your credit card. You can access your transactions in real time instead of having to wait for a monthly paper statement to arrive. You can also set alerts to notify you of suspicious charges, when you’re nearing your credit limit, and when it’s time to pay your bill. Plus, if you lose your card or see a questionable transaction, you can quickly report it.
It is important to learn how to protect yourself from fraud and what to do if you are a victim. Remember these tips:
Never give your credit card number over the phone unless you initiated the call.
Create a strong password that is unique to the account.
Set notifications for unusual activity and check your account often.
Check your credit report
Now that you’re actively building credit with your first credit card, it’s important to get in the habit of monitoring it. The three major credit reporting agencies, Equifax, Experian, and TransUnion, keep track of your credit history. You are entitled to a free report on each of these once a year. Reviewing your credit report regularly can help you identify errors that could be negatively affecting your credit score. Common errors to check include debts posted more than once or incorrect account balances or credit limits. If you find an error, the Consumer Financial Protection Bureau offers some tips and sample letters for filing a complaint.
Know your credit score
Your credit score is based on the information in your credit report and is used to measure how trustworthy you are in repaying borrowed money. Generally, good credit health can help you later when you want to make larger purchases that may involve loans or other credit cards. Many banks provide free credit scores through online banking and mobile apps. If you want to rebuild your credit or are building credit for the first time, consider starting with a secured credit card to build your credit history.
