Congratulations, you just received your first credit card! You are one of 10 million people in the United States who recently received a new credit card! Credit card use is a step away from someone else overseeing your finances and towards “adulting” into life’s responsibilities. Let’s talk a little bit about what you’re getting yourself into.

FIRST CREDIT CARD BASICS:

WHAT IS IT, WHY HAVE ONE, AND WHAT’S SECURED VS. UNSECURED?

A credit card offers a short-term loan and provides a safe way to make purchases. The card replaces the need to carry a lot of cash and the risk of loss or theft. The card also provides a record of purchases; very handy if you lose a receipt and must return an item. Judicious credit use builds positive financial history for later, more significant transactions, including cars and property. The first card is likely a secured card backed by a collateral deposit of cash that guarantees payment of the bill. On-time payments and regular use will transition it to an unsecured card, with a limit based on your credit history and income level.

WHAT ABOUT GRACE PERIODS, INTEREST, AND MINIMUM PAYMENTS?

A grace period, usually from 21 to 25 days, grants you interest-free monthly payments, provided you pay before or on the due date. Once past the grace period and due date, interest accrues daily, and the current average interest rate is around 15%. If you make a minimum payment that month, rather than pay the balance in full, the interest rate compounds the average daily balance owed, not the unpaid amount. The minimum amount owed is a percentage of the total balance, sometimes with added fees and interest. Paying this is spending additional money to use your own money, and paying your balance in full each month is the best way to avoid it.

HOW’S MY CREDIT SCORE, WHAT’S CREDIT UTILIZATION, AND I WANT MY REWARDS!

Credit cards impact your credit score in five ways, using your FICO score as the standard most widely viewed by lenders. Payment history, types of accounts in use, credit utilization, length of credit history, and new credit account in varying percentages for your total score. And credit utilization, the rate of full available credit in use at any given time, is the second-most-important factor in your credit score. Prospective lenders generally want to see no more than 30% of your total available credit in use. Your reward for all this spending, in the form of cashback or travel points, comes from interchange fees paid between your bank and the merchant’s bank. Reward amounts vary from 2% to 6% depending on the type of purchase and spending and disburse monthly, quarterly, or annually, depending on the card issuer.

WHY DOES THE CARD CHIP MATTER, AND DID YOU SAY SOMETHING ABOUT FEES?

Consumers and card issuers’ security concerns prompted the EMV-chip credit cards. The chip’s thousands of data points transmit specific and difficult-to-duplicate information to merchants’ card readers, banks, and card issuers, keeping card users safer from fraudulent use. If you travel overseas, many nations outside the U.S. now accept only chip-enabled cards. And whether you take your card when you travel abroad or take it to the corner coffee shop, know the potential fees associated with your card. Fees for foreign transactions, late payments, over-limit spending, and balance transfers add hundreds of dollars to your spending.

The Credit Care Company is here to address your financial needs and questions. We offer resources for building credit, obtaining secure credit cards, credit repair, business funding, and debt settlement. We believe in our ability to educate clients and design a solid, individualized economic framework. Contact us for information and earn the rewards of good financial stability.