Credit Card Basics
Contributed by Alyssa Serrano-Feldleit — a Students Speak Up for Kid’s Volunteer.
Overview
Choosing the right credit card can feel overwhelming, especially with so many options and hidden fees to watch out for. But finding the perfect card doesn’t have to be complicated! With the right knowledge, you can make a smart choice that fits your lifestyle, helps you build credit, and keeps you out of unnecessary debt. In this guide, we’ll break down what a credit card is, the common fees to look out for, and how to avoid them—plus some tips on where to find the best cards and how to apply.
What is a Credit Card?
A credit card is a card that someone applies for to be able to pay for things needed when cash is not available. This card shouldn’t be confused with a debit card which is a card that when used, takes money from your checking account to pay for the transaction you're making. (The exact opposite of a credit card seeing as when you use a credit card you are using someone else’s money). In simple terms, a credit card is like a monthly loan (with a limit of course!) that must be paid back every month in order to avoid penalties (fines).
Fees on Credit Cards
In order to pick the right credit card for your needs, you need to have a basic knowledge of what the card offers as well as the fines it charges. These fines can include but are not limited to:
Late fees: For when you miss your monthly deadline to pay back the money you spent on the card.
Over-the-limit fees: For when you spend more on your credit card than the allowed amount. For example, usually for first-time credit card owners, the limit is low and can start at $2,000 to $2,500.
Annual fees: Fees for just owning the credit card.
Cash advance fees: Fees for taking money directly from the credit card.
Balance transfer fees: Fees for moving your balance from one credit card to a different one.
Those are the most common fees imposed on credit cards. It’s always best to find a credit card with no annual fees. The other fees that can be imposed by a credit card company shouldn’t be as important because responsible credit card owners make their payments on time (avoiding the late fee), always know the limit of their credit card, are mindful of their spending, and don’t take cash advances. It’s also noteworthy that having more than three credit cards isn’t the best choice. Likewise, before we move on, it’s important to never take a cash advance because it puts you further in debt than you were in before.
How to Avoid Fees on Credit Cards
Credit card companies tend to ‘bank’ (pun intended) on the fact that you will make a late payment or do things like a balance transfer which is why they make the fees on those things so high. The best way to avoid these fees is to apply for a card and stick with it to avoid balance transfer fees, find a card with no annual fees, and make payments on time every month.
Life Hack: If your memory isn’t that great you can set up automatic payments on your online banking account. Instead of having to log in every month to make the payment or go to the bank to do it, the payment will automatically take money from your account to pay for your bills.
Where Can You Find Credit Cards?
Now that you know the fees credit card companies can impose, it’s time to start searching for the right card. Well-known banks that you can choose from include but are not limited to:
Bank of America
Capital One
Discover
Chase
American Express
You can look for credit cards from banks but if you're a frequent shopper, you might want to consider a retail credit card. Some stores that offer in-store credit cards include but are also not limited to:
Target
Costco
Macy’s
Amazon
These cards are the same as regular credit cards but offer deals for in-store purchases. Research credit cards offered by banks and stores, and choose one with no annual fee and a low interest rate—also try to find ones that offer a sign-up bonus. Those bonuses usually range from $200-$500 just for getting the credit card.
Applying for Credit Cards
Once you have gone over the fees of the credit card you're interested in and are sure that you are able to be a responsible holder of the card, it’s time to apply for it! Some basic information a bank will need in order to determine if you are able to own the card includes but again, is not limited to:
Your full name
Your Social Security Number
Your date of birth
Your address
Your phone number
And possibly your email address
Your financial information
There could be more information needed in order to apply but those are the basic things needed. After you apply, assuming you get approved, you will now be a credit card owner!
Final Thoughts
Credit cards can be a powerful financial tool when used responsibly. By understanding what a credit card is, knowing the fees to avoid, and choosing one that fits your needs, you’ll set yourself up for success. Always remember to make payments on time, keep your spending within your limit, and look for cards with low fees and perks that benefit you. With these tips, you’ll be well on your way to building strong credit and making the most of your financial opportunities!
