Thinking about getting your first credit card but don’t know how to begin? You’re not alone. Understanding how credit cards work can be confusing, especially when it’s not something that’s taught in school. Whether you’re unsure how to apply or what interest means, keep reading. Below are the answers to credit card questions that students should know.
1. What is a credit card?
A credit card lets you buy things now and pay for them later. Instead of using your own money right away like a debit card, you’re borrowing money from the credit card company to make purchases. When you get your shiny card, the company will give you a credit limit, which is the maximum amount you can borrow. For example, if your card has a limit of $400 and you spend $50 on a textbook, you’ll have $350 left to use until you pay some of it back.
Whenever you buy something on credit, you don’t have to have the funds in your bank account at that moment. For this reason, a credit card can be a great tool for when you’re between paychecks and need to make a purchase. As you use your card throughout the month, you will accumulate a balance. At the end of each billing cycle (which is usually every 30 days), you’ll get a statement showing how much you owe. You can then choose to pay the full balance or a portion of it by your monthly due date.
If you don’t pay the full balance by the due date, you will be charged interest. Interest is the cost of borrowing money. The interest owed is based on the card’s APR (Annual Percentage Rate), and is only added to your bill if it is not paid in full each month. A credit card gives you flexibility, but it’s important to stay on top of payments to avoid extra charges and build a strong credit history.
2. How is a credit card different from a debit card?
At first glance, debit cards and credit cards appear to be the same, as they both let you pay for things by tapping or inserting your card. However, there are key differences between the two. A debit card takes money directly from your checking account, which holds funds that you already have. On the other hand, a credit card uses money that you are borrowing to be paid back at a later date.
Another big difference between the two cards is the spending limits. With a debit card, your limit is whatever is in your bank account or a self-imposed daily purchasing limit. With a credit card, your spending limit is your credit line set by your card issuer. Finally, a credit card typically offers better fraud protection than a debit card. If your credit card is lost or stolen, you often are not responsible for those purchases. If someone were to get a hold of your debit card and drain your bank account, getting that money back can be much harder.
3. Why should I get a credit card?
While there are many reasons to get a credit card as a young adult, one of the most important is that it helps you build credit early. Your credit report is like your financial report card, and one indicator of your financial behavior is your credit score. Your score (usually between 300-850) reflects how reliably you handle borrowed money. Using a credit card responsibly, like making payments on time, can help you build a good credit history. This can come in handy when you want to rent your first apartment, get approved for a car loan, or apply for student loans in the future.
Credit cards are especially helpful for students because they can help you learn about budgeting and spending habits, offer a sense of security, and provide support in emergencies. Your card will also make buying things easier, like textbooks or groceries, without needing to carry cash around campus. You want to make sure you use your credit card responsibly now in order to positively impact your credit for your future financial goals.
4. Will a credit card cause me to go into debt?
Some may believe that getting a credit card will automatically mean going into debt. In reality, it all depends on how you use it. If you make smart purchases and stay on top of your payments, you are on track for success. However, poor spending habits and missing monthly payments can lead to an accumulation of debt.
Each month, your credit card company will send you a statement with your purchases, how much you owe, and the minimum payment due. You can receive these by mail, email, or through an online banking mobile app. Making the minimum payment will keep your account in good standing, but it is better to pay as much as you can. Paying your balance in full each month is one of the best ways to avoid interest charges and stay out of debt.
5. Can I get a credit card if I have no credit history?
If you’ve never had a credit card or loan in your own name, then you likely don’t have a credit history yet. This is normal, as everyone needs to start somewhere. The good news is that you don’t need a long credit history to get your first line of credit. Some companies and banks, like 1st Financial Bank USA, cater specifically to first-time credit cardholders, like college students.
Opening a credit card is a good way to build credit in college. Student credit cards are ideal for those just starting out on their credit journey. These cards may have an annual fee and a lower credit limit, which will help you build credit slowly and safely. If you’re not in college, consider applying for a secured credit card. Secured credit cards require a small deposit, which acts as your credit limit. It works just like a regular credit card and helps build your credit over time.
6. How old do you have to be to get a credit card?
In most U.S. states, you must be at least 18 years old to open a credit card account in your own name. (Please note that some states may require individuals to be 19 years of age or older.) However, your age isn’t the only thing that matters when you’re considering a credit card offer. You must also have your own income to show you can pay your credit statement each month. Your income can come from various places, like a part-time job or work study position. You can also try out a side hustle in college, like tutoring, being a delivery driver, or freelancing, to bring in a bit more money each month.
Before you get a card, make sure that you can afford it. After paying for essentials like rent and your phone bill, you should still have some money left over. This extra money is what you will use to pay off your credit card. If you consistently aren’t able to pay off your balance at the end of each month, it might be a sign that you need to rethink your college student budget.
7. How do I apply for a credit card in my own name?
If you’re considering applying for a credit card, there are a few things you need to do. Start by researching your options. Once you pinpointed the card for you, you’ll want to gather your social security number, address, phone number, and other basic info needed to apply.
If at any point you need help filling out your application, don’t hesitate to ask a parent or trusted adult who has been through the process before. When you apply online or over the phone, customer service may approve your application right away. Others may take a period of time to determine your eligibility. Overall, a credit card is a big responsibility. Before filling out an application, make sure you’re confident you can use it wisely and pay your bill on time.
Getting your first credit card is a big step, and one that requires a lot of discipline. As a current or soon-to-be credit cardholder, it’s up to you to make smart choices with your card. Before you swipe or tap, be sure to ask yourself if the purchase is something you really need. Using your card for essentials can help you avoid debt and build a strong credit history. The smart money habits you’re building now will stick with you throughout the rest of your life.
