Fast facts you need to know…
A credit card company set limits on how much you can charge on your card. This limit is based on your ability to handle debt.
Paying the minimum monthly payment
Bad idea. After you subtract the minimum payment from your balance, finance charges will be added to your remaining balance. These charges add up month after month. You can dig yourself into a hole real fast. Want to see how? Check out I Paid How Much?
Know this too: the minimum payment is the LEAST amount you can pay to keep the card active. If you pay less, your card will be deactivated (turned off). Check out the Debt Calculator.
If you pay your bill in full during the grace period, you won’t have to pay a finance charge on purchases for that bill. A grace period is usually about 25 days.
If you don’t pay your bill by the due date (the date your grace period expires), you will be charged a late fee. These can be as high as $35! Get yourself organized to pay on time. Paying late is costly.
Remember: when you use your credit card, you’re borrowing money. So you will be charged interest whenever you don’t pay your bill in full. With a credit card, you are paying for convenience. Credit card rates can be 18% or as high as 24% depending on your credit history.
“Secured” credit cards
Some banks offer secured credit cards to people with a poor credit history or no credit history at all. Secured cards can be the best option for your first credit card. The card is “secured” with a cash balance, a savings account, for example. You cannot touch this balance, or the card will be deactivated (turned off). If you charge over your limit, the bank can take the balance from your account. Your account acts like collateral for a loan. These cards may charge higher interest rates, but they offer the convenience of using a credit card while you build a good credit history.
Your credit card is lost or stolen
You must notify your credit-card company as soon as you know your card has been stolen or used without your permission. If you do, you will be responsible for only the first $50 of unauthorized charges. These days, thieves can steal your credit card number — they don’t need the actual card. Always know where your card is, and keep all your receipts.
Debit cards do not offer the same protection as credit cards. (Some credit card companies offer debit cards with some protection.) Most debit cards work like writing a check — the money is immediately taken out of your account. If you do not report a false charge or charges within 60 days of receiving your bank statement, you could be held responsible for the false charges. Be sure you understand the details when you sign up for a debit card.
As you enter the adult world of work, you begin to build a credit history — a record of your borrowing and paying habits.