If you are considering getting your first credit card, you might be looking for information on the subject so that you can make a wise choice. Rather than being a simple financial tool, a credit card can impact your future in a significant way. If you use it properly and discipline yourself, you will enjoy a lot of benefits. You can choose from several types of credit cards, and the one that you pick will depend on your current situation and your needs. You are about to learn everything that you will need to know as far as getting your first credit card is concerned, allowing you to move forward with peace of mind.
Credit Cards Explained
Before you get a credit card, take some time to learn about what they are and how they work. You will notice that credit cards look similar to debit cards, but it’s important for you to become aware of the difference between the two. While a debit card takes funds directly from your checking account, a credit card allows you to borrow money against your line of credit. Since you will be getting your first credit card, your credit limit will likely be a few hundred dollars or less.
Understanding Interest Rates
When you make a purchase with your credit card, the balance that you carry over to the next month will generate interest that you will need to pay. Different credit cards will have different interest rates, but your credit score will also play a role. For your first credit card, you can expect to pay 20 percent in interest annually. But most finance companies offer a grace period, and if you pay off your balance within that window, you won’t need to pay any interest. Most grace periods are between 25 and 30 days, so you must keep an eye on your due dates if you want to avoid paying more than needed.
Benefits of Credit Cards
Some consumers avoid getting a credit card because they don’t want to worry about service charges and interest rates, but using a credit card wisely can provide you with many benefits. By making your minimum payment on time each month, you will start to improve your credit score. In a few years or less, you will be able to rent an apartment, take out larger loans or buy a house.
In addition to helping your credit rating, some credit cards come with rewards and bonuses. You can often get between 1 and 2 percent cash back on anything that you buy with your credit card, and when you pay your balance off before the end of the billing cycle, it won’t cost you anything to take advantage of the special offers.
An improved credit rating and reward points are just a few of the advantages that you can expect from a reputable credit card company. But when you have a credit card, spending more money than you can afford is tempting, so using it in a smart way is vital for anyone who wants to avoid trouble. But with a little restraint, your first credit card can be a powerful tool for building your financial future.