Are you thinking about opening a credit card account? Or have you recently opened an account? You may be feeling like a novice, but worry not â€” weâ€™ve compiled a guide to help walk you through the most common credit card terms. Youâ€™ll also find advice on how to be a responsible credit card user.
Credit cards are lines of credit that can be used continuously as you pay off your balance. Theyâ€™re a handy way to pay for items of all kinds, and can help you build credit when used responsibly. Credit cards usually have detailed terms and conditions that list fees, rewards, benefit restrictions and more. Here are the important ones you should know
There are numerous credit cards available for a wide range of needs, from building credit to earning rewards, to getting out of debt and more. You should decide what your goal is with a credit card, then compare cards from various issuers prior to applying. Some issuers allow you to fill out a pre-qualification form that does a soft pull on your credit. This doesnâ€™t affect your credit score and is a great way to shop around for the best deals. One note: Pre-qualification is not a guarantee of approval.
An important step prior to applying for a credit card is to review the cardmember agreement. Each card has different rates and fees that vary based on any number of reasons, including credit history, actions you take (or donâ€™t take), the prime rate in the market and more. Itâ€™s crucial to review the cardmember agreement so youâ€™re aware of any fees you may be charged, as well as how the card works.
Make on-time payments. Perhaps the most important aspect of having a credit card is to make timely payments. By doing so, you avoid late payment fees and penalty APRs that can hurt your credit score.
Pay your balance in full. A great goal is to always pay your bill in full so you never carry a balance. Any unpaid balance will be charged interest (unless associated with a 0% APR promotion) and can cause you to rack up debt. This also negatively affects your credit score.
Avoid overspending. Itâ€™s common for people to mismanage their credit cards and be tempted to overspend, but with proper budgeting, you can avoid falling into debt. A good rule of thumb is to only spend what you can afford to pay at the time of purchase â€” this way you know you can pay off your balance.
Keep a low utilization rate. The percentage of available credit you use is known as utilization, and is a factor in your credit score. Itâ€™s important to keep a low utilization rate so issuers see youâ€™re not a risk â€” ideally no higher than 30%, but the lower the rate, the better. Constantly maxing out your card raises concerns for issuers and can cause you to fall into debt.
Check your monthly statements. By simply reviewing your monthly statements, you can proactively notice any fraud that may occur on your account and isnâ€™t flagged by your credit card company. Most companies send notifications if they think thereâ€™s fraud on your account, but they donâ€™t catch every instance of suspicious behavior.
You can also choose to use a service to monitor your credit. MagnifyMoneyâ€™s parent company, LendingTree, offers this service for free.
Check your credit score and credit report. Checking your credit score on a monthly basis is a good habit to get into and can promote positive credit behavior. Read our guide on where to access your free credit score and other credit tips. Itâ€™s also a good idea to check your credit report every few months to make sure everything checks out and no unknown accounts are opened in your name. Annualcreditreport.com is the only source for authorized credit reports from all three major credit bureaus, and you can run one report annually for each bureau. We recommend spacing them out every four months.
Secure your card. Donâ€™t leave your card unattended or loan it to friends. Your card is your responsibility and should be treated with care. If you happen to lose your card or itâ€™s stolen, contact your issuer immediately and put a hold on your account until your card is found or replaced.
Donâ€™t request a cash advance. Cash advances are notorious for high fees and tricky terms that can draw you into debt, so itâ€™s best to avoid them entirely. If you need cash, look to personal loans, which may have better terms.
Having a credit card can be a great way to build a credit history, as long as you use it responsibly. Understanding all the terms, as well as your cardmember agreement, is crucial to being a responsible cardholder. Refer to this guide before signing up for your first credit card, or if you have any questions about your current credit card account. Your wallet â€” and credit score â€” will thank you.