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Credit Cards: A Beginner’s Guide

July 9, 2021
A man smiling at his credit card.

Are you considering getting a credit card? Before applying, it’s important to understand the basics of how they work. Credit cards can be useful, and building credit is important to your long-term financial future. But credit cards can also lead to trouble, especially if you’re not informed of what you’re agreeing to.

How Credit Cards Work

Credit cards are accounts that allow you to pay for something on credit, meaning that you promise to repay the lender – in this case the issuer of the credit cards – for the purchase. In addition to the amount that you borrow, you must pay interest on the purchase amount if you don’t pay it back in full within a certain time period. The interest rate is the price you pay to borrow money that you agree to when you sign up for the credit card.

In order to qualify for a credit card, you must be 18 years old and show proof of your ability to repay. If you are under 18, a parent can add you as an authorized credit card user to their existing account. Each month when you get your bill, the credit card issuer will specify a minimum amount to pay, and a due date.  

The Basics of Building Credit

As you borrow money and repay it, you slowly build a credit history. From there, credit bureaus such as Equifax, Experian, and TransUnion collect your history and use it to assemble credit reports, which outline your borrowing history. Credit reports help illustrate to lenders your trustworthiness as a borrower and your history of repayment. The better your credit, the more likely you are to be approved for loans and possibly lower interest rates. In some cases, your credit can impact your ability to rent an apartment, get a cellphone, or land a job.

In short, establishing and building credit is an important part of your financial wellness. Using a credit card responsibly is an easy way to build a healthy credit history.

How to Use Credit Cards Responsibly

Credit cards are convenient and sometimes offer rewards or benefits for making purchases with your card. However, there are risks to over-spending or submitting late payments. Here are some tips to keep you on track with utilizing your credit cards.

  • Think twice before you swipe. Credit cards offer the freedom to make purchases you don’t have the cash for but try not to use them for things you can’t afford.
  • Keep it handy in case of emergencies. Credit cards can offer security for emergencies such as car repairs or medical expenses.
  • Be aware of due dates. Make timely payments in increments you can afford, but making at least the minimum required periodic payment, on or before the due date to avoid late fees and agency reporting of delinquent payments to the credit bureaus.
     

Please note, membership is required to open a DCU Visa® Platinum credit card.

This article is for informational purposes only. It is not intended to serve as legal, financial, investment or tax advice or indicate that a specific DCU product or service is right for you. For specific advice about your unique circumstances, you may wish to consult a financial professional.