Whether you’ve had problems with credit cards before, or you’re just opening your first, there are plenty of terms that might be new to you, and it can seem overwhelming.
This jargon-free guide will give you everything you need to know about your credit card and help you make the most out of it.
How does your credit card work?
Your credit card works like your debit card, but instead of the money leaving your account the moment you use it, the expense builds over a certain time period, usually a month. So, each purchase is kind of like a short-term loan from your card issuer. Usually within the month, you make a full or partial payment to pay off any credit you used.
You will likely be allocated a relatively small minimum payment to pay back by a certain date, but to avoid debts building over time from interest accumulation and to potentially improve your credit score, pay off your balance in full each month before your statement is produced.
Using your credit card wisely to build credit
By using a credit card sensibly, you prove that you can borrow money and pay it back, thereby improving your credit score over time. Using it poorly, however, can damage your credit score, so it’s important to know how best to use your credit card.
If you decide not to pay your balance off in full, it’s important to leave enough available credit on your balance so any interest and charges that are applied to your statement don’t take you over you credit limit.
Learn how to compare credit cards
Whilst there are general rules to follow when using your credit card healthily, it’s also important that you know the details of your specific card, because each card is different.
Make sure that you are aware of your APR (Annual Percentage Rate) and remember that it might not be the same as the rate you saw advertised. Only 51% of successful applicants are offered this rate, so what you are offered will depend on your financial situation.
Fundamentally, APR is the cost of borrowing on your credit card, so make sure you can pay off most and preferably all your balance each month to avoid this building up.
There may also be other costs. Watch out for things like annual fees, late fees, charges for withdrawing cash, using your card abroad etc. Make sure that you understand any that apply to your card and check your statements regularly to avoid any charges building up, because they are often not exempt from interest.
The most important thing when it comes to getting your first credit card is understanding your card and getting into a good financial habit. If you’re unsure about any aspect of your card, then clarify it with your card issuer. From this point onwards, you can enjoy the many benefits of using a credit card.