Credit Cards

Finding the Right Card

There are many different types of credit cards available from tons of issuers. Some things to watch out for when looking for the right credit card are…

APR (Annual Percentage Rate)
Annual Fees
Over-Credit-Limit & Late Payment Fees
Grace Periods & Payment Schedules
Rewards Offered

It’s important that you look at all of your options and consider how you will be using your credit card before you apply for any card.
For instance, if you’re interested in a rewards card that has an annual fee attached, do the math – is the payout in rewards worth more than the money you pay towards the fee?

Credit Limits & Responsible Spending

When using your credit card, it is important to understand the difference between your credit limit (probably a pretty big number) and your spending limit (a small fraction of your credit limit).

Your credit limit is the amount of money that the credit card issuer is willing to loan you. (Be aware this may be a lot more than you can actually afford to pay).

Your personal spending limit is the amount of money that you have decided you can afford to spend on your credit card on a monthly basis. The best idea is to spend no more than you can pay off (completely) when your bill comes.

Understanding the difference between these two numbers and staying within your spending limit is crucial to not racking up credit card debt. Plus, it will help your credit score.

Credit Score Tip: The general consensus on credit card spending is that you should only use up to 30% of your credit limit. Charging a large percentage of your available credit can negatively affect your credit score, even if you are paying on time and in full. Learn more about credit scores.

Minimum Payment vs. Paying Full Balance

Back to Credit Cards 101 it is important to remember that a credit card is a loan. When you are taking a loan and spending someone else’s money, you have to pay it back.

There are 2 options on making credit card payments:

Pay your full balance each month. You will not accrue interest and will never owe the issuer anymore than what you spent.
Make at least the minimum monthly payment but still retain a balance. You will accrue interest on your balance and owe the issuer more money than what you actually spent. Even if you don’t make additional purchases, you will still owe more money because your balance will continue to accrue interest until you have paid it off.

Option 2 is a very bad idea. To see why, use Bankrate.com's credit card calculator to see just how long it will take you to pay off your balance... and just how much extra money you are paying in interest. The numbers aren't pretty.

Tracking Your Credit Card Activity

Most credit cards provide a web site that you can log into to access your credit card account details, including current and pending transactions and past statements. You can also use these sites to make credit card payments.

It is a good idea to monitor your account using these sites because if there are any incorrect charges or suspicious activity, you can find and correct them much sooner.

Blogs & Videos

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The Magic of Minimum Payments

Making the minimum payment on a loan is just fine... unless that loan is a high interest. Prime example: Credit Cards. Let's go over how a minimum credit card payment works:

You spend $500 today and in about 30 days you'll be billed for a minimum payment of $20. You like the idea of paying $20 instead of $500, so you make the minimum payment. You decide to keep on making the minimum payment. Months later (and by 'months', we really mean 'years'), you'll finally pay off that $500... plus you'll pay over $100 interest. Ta-da! Like magic, you've turned your $500 purchase into a $600 payment. How do you like that trick?