If you’ve never had a credit card, then this article is for you. Credit cards don’t need to be scary. In fact, they are a great tool when used correctly. They are a convenient and useful way to pay for purchases, no matter where you are. While the thought of having credit card debt is scary, you can use credit cards wisely by charging regular monthly expenses, such as groceries and gas, and paying your bill in full every month. This allows you to reap the benefits of a credit card without incurring interest charges and excessive debt.
The biggest difference in a credit card and a debit card is the funds aren’t directly taken out of your checking account. In a way, you are taking out a short-term loan. Depending on when you pay it off, this short term loan can accrue interest. If your billing cycle is one month, you get a small grace period to pay off that balance, or you can opt to the pay minimum payment and accrue interest.
There are two main types of credit cards, secured and unsecured. Secured cards have a cash deposit behind them that is equal to the card’s limit to act as collateral to remove the risk. The cash doesn’t actually come out of your bank account the way it would with a prepaid card. Unsecured credit cards (the more common type) have a credit limit based on your income level and credit history. If it’s your first credit card, you’ll likely have a lower limit until you prove you can pay your bill on time each month.
Your credit score is something that impacts your entire life. Good credit usually means lower interest rates when you apply for loans and credit cards. Another perk of having good credit is your car insurance premium could be lower, since more than 90% of auto insurance companies use credit data when determining rates and terms. Landlords and rental agencies will also pull your credit report as part of their review process. When you are looking to increase your credit score, paying your credit card on time every month is a great place to start. You will establish a sound payment history, thus building your credit!
If you’re not sure where to get your first credit card, start with Energy Capital Credit Union. We will walk you through the process and get you the card that’s right for you. Call us at 832-604-4848 or you can use our instant chat at www.eccu.net.