Credit Cards for Dummies: Everything You Need to Know

Credit cards can be a great way to build credit and earn rewards, but they can also be a source of financial stress if not used responsibly.

The average American has two to three credit cards, and the total outstanding credit card debt in the US is over $1 trillion.

Credit card interest rates can be as high as 30% or more, so it's essential to pay your balance in full each month to avoid these high fees.

To qualify for a credit card, you typically need a good credit score, which is based on your payment history, credit utilization, and other factors.

A credit card is essentially a line of credit that lets you borrow money from the bank to spend on your everyday purchases.

Your credit limit is the maximum amount you can borrow, which depends on your income, other debts, and available credit on other cards.

You'll receive a credit card statement at the end of each monthly billing cycle with the amount you owe, your minimum payment amount, and the payment due date.

To maintain good credit, you need to make the minimum payment on your balance each month to avoid late fees and potential damage to your credit score.

Paying just the minimum every month is the most expensive option, since it will cost you the most in interest, while paying in full each month gets you a grace period to avoid paying any interest on purchases.

Credit cards can be confusing, but don't worry, I'm here to break it down for you.

Your credit limit is the maximum amount you can borrow, and it's determined by your income, debts, and other factors.

To get a credit card, you need to be approved by the bank, which will then issue you a line of credit.

You can borrow up to your credit limit, but it's not recommended to use the full amount.

The payment network, like Visa or Mastercard, processes transactions and makes sure the money gets to the merchant.

You'll get a bill at the end of each month with the amount you owe, and you have the option to pay the minimum, the full balance, or something in between.

Paying just the minimum every month is the most expensive option, as it will cost you the most in interest.

Paying in full each month gives you a grace period, allowing you to avoid paying interest on purchases.

Your credit card issuer reports your payments to the credit bureaus, which counts for 35% of your credit score.

Applying for a credit card can take about 2 to 3 weeks to process.

You can expect to receive your new card in the mail after that. The status of your application will also be notified to you by mail.

Withdrawing money from your credit card is possible, but it comes with a higher interest rate and an extra fee. This can be a costly option, especially in emergencies.

Your credit card usually expires every 3 to 4 years. The expiration date is printed on your card, below the credit card number.

You'll receive a new card in the mail before your old one expires. This way, you can continue using your credit card without any interruptions.

Using your credit card responsibly can help you earn rewards, pay off debt, and build a strong credit history.

Credit cards are not a one-size-fits-all solution. There are several types to choose from, each with its own set of benefits and drawbacks.

Secured credit cards are a good option for those who want to build credit or improve a lower credit score, as they have a more lenient approval process.

Unsecured credit cards, on the other hand, don't require a security deposit, but often come with higher interest rates and fees.

Student credit cards are designed for students with little to no credit history, and often offer rewards tailored to student living, such as cash back for gas, restaurants, or groceries.

Store credit cards can be tempting, especially with discounts or rewards, but be careful - they often come with high interest rates that may not be worth the initial discount.

0% interest credit cards offer an introductory period with no interest charges, but be aware that you'll have to start paying interest fees once the period is over.

Here are some key features of different types of credit cards:

Credit card fees and interest can be a real headache, but understanding how they work can help you avoid them. You usually need good credit to qualify for low-interest cards, which provide value with a lower interest rate.

Low-interest cards often come with a 0% introductory APR period, giving you time to pay off a large purchase without interest. This can be a huge relief, especially if you're trying to pay off a big bill.

Here are some common credit card fees to watch out for:

If you carry a balance on your credit card, you'll want to choose a card with a low interest rate. The interest rate is what you'll be charged if you don't pay off your full balance each month.

Annual fees can be a significant cost associated with credit cards. Some cards charge annual fees, ranging from around $20 to hundreds of dollars.

If you're considering a card with an annual fee, make sure it offers rewards and perks that make up for the cost. In most cases, you shouldn't pay a fee just for the privilege of having the card in your wallet.

The Schumer box, a table on a credit card's application page, discloses the annual fee, among other terms. You can find it by looking for a link marked "Rates and fees", "Pricing and terms", or something similar.

Some cards charge annual fees, while others don't. You can avoid most annual fees by choosing a card with no annual fee that still offers rewards.

Here's a breakdown of annual fees:

Keep in mind that some cards waive the annual fee in the first year, so be sure to check the terms before applying.

Credit cards can come with a range of costs, from interest payments to annual fees. You can avoid most of these costs with responsible use.

The interest rate is what you'll be charged if you don't pay off your full balance each month. If you carry a balance, you'll want to choose a card with a low interest rate.

Interest payments can be avoided by paying your credit card bill in full every month. This way, you won't accrue interest on new purchases.

Annual fees can be worth paying if the card gives you rewards and perks that make up for the cost. However, in most cases, you shouldn't pay a fee just for the privilege of having the card in your wallet.

Late payment fees can be costly, with the first-time late fee capped at $27 and subsequent fees limited to $38. These fees can't cost more than the minimum payment due.

Balance transfer fees typically range from 3% to 5% of the amount of debt transferred. Some cards waive the fee when you transfer debt within a certain time frame.

Foreign transaction fees can be avoided if you don't plan on using the card to make charges outside the U.S. Several issuers don't charge foreign transaction fees anyway.

To avoid these costs, consider the following:

By being mindful of these costs and taking steps to avoid them, you can use your credit card responsibly and make the most of its benefits.

Using credit cards responsibly is crucial for maintaining a good credit score. You can pay your bill on time and in full every month to avoid interest charges and late fees.

To keep your balance in check, aim to keep it below 30% of your available credit. For example, if you have a $5,000 credit limit, keep your balance under $1,500. This shows lenders you don't need to rely too heavily on credit to pay your expenses.

Setting up auto-payments can help you avoid missing payments, so consider setting up automatic payments from your chequing account to your credit card. This way, you'll never have to worry about forgetting to pay your bill on time.

Here are some key credit card payment habits to adopt:

By following these simple tips, you can use credit cards responsibly and maintain a healthy credit score.

Using a credit card responsibly is an easy and efficient way to establish healthy credit. You'll be thankful that you did so when you're able to borrow affordably in the future.

To keep your credit utilization ratio low, aim to use less than 30% of your available credit. This means if you have a credit limit of $5,000, keep your balance under $1,500. Most experts recommend this threshold.

Paying your bill on time is crucial, so set up auto-payments with and for your credit card. This way, you won't have to worry about forgetting to pay your bill on time.

Try not to spend more than you can afford to repay, and stick to a budget. Paying just the minimum balance will keep your account in good standing but it won't save you on interest fees.

Here are some best practices to consider:

By following these tips, you'll be able to establish a positive payment history and keep your credit score in good shape.

Paying your credit card bill on time is essential to maintaining a healthy credit score. This means making payments by the due date, which is usually listed on your credit card statement.

To avoid late fees and interest charges, it's a good idea to set up automatic payments with your credit card issuer. This way, you'll never have to worry about forgetting to pay your bill on time.

Keeping your credit utilization ratio low is also crucial for maintaining a good credit score. This means keeping your balance below 30% of your available credit limit. For example, if you have a $5,000 credit limit, you should keep your balance under $1,500.

Here are some best practices to consider:

Paying more than the minimum payment each month can also help keep your credit score healthy. This means paying off the actual balance, rather than just the interest and fees.

Here's a rough estimate of how your payment timeline might look once you start using credit:

Remember, paying less than the full amount can lead to paying much more in interest and fees over time. It's always a good idea to pay more than the minimum payment to keep your credit score in good shape.

Understanding your statement is crucial to managing your credit card effectively. You'll want to know the maximum amount you can charge to your credit card, which is typically listed on your card and statement.

The statement balance, also known as the Amount Due, is the amount you owe at the end of your monthly billing cycle. If you don't pay the full Amount Due by the due date, you'll be subject to interest charges.

Your credit card statement will have a unique number that helps your card issuer recognize your account. This number is usually found at the top of the statement.

To read your credit card statement, look for the following information:

You'll also want to check for the minimum payment amount, which is the minimum amount of money you need to pay towards your credit balance this month. Make sure to note the payment date, which is the date by which your card issuer must receive your payment to avoid penalties and late fees.

Paying the minimum payment on your credit card can be misleading. It might seem like a friendly suggestion, but in reality, it's a recipe for debt disaster.

The minimum payment typically covers only the past month's interest and fees, leaving the underlying balance untouched. You're essentially treading water, not making a dent in your actual credit card debt.

To avoid this trap, pay more than the minimum payment each month. This will help keep your credit score healthy and prevent your balance from spiraling out of control.

The minimum payment is a crucial aspect of managing credit card debt. You need to pay at least this amount each month towards your outstanding balance.

Paying only the minimum can be misleading, as it might suggest you can get away with paying a smaller amount. In reality, paying less now generally means paying much more later.

Your credit card statement will prominently display the minimum payment due, which typically covers the past month's interest and fees, and only a small amount of the underlying balance. This means you're mostly treading water and not making a significant dent in your actual credit card debt.

Paying more than the minimum is a healthier option for your credit score, but it's essential to remember that you can't always pay the full amount.

A balance transfer credit card can be a game-changer for people with high-interest debt.

These cards allow you to move your debt from another issuer to a new card with a lower interest rate. Generally, these cards require good or excellent credit.

Credit card security has become a growing problem, with the Federal Trade Commission receiving over 4.7 million reports in 2020 through its Consumer Sentinel Network.

The number of identity theft reports has almost doubled since 2019, with government documents and benefits fraud being the most common form, accounting for 406,375 reports.

In 2020, nearly 1.4 million reports of identity theft were made, with credit card fraud being the second most common type, making up 393,207 reports.

Large-scale data breaches have also become a major concern, with popular brands like Volkswagen and Wegmans experiencing data spills that put consumer data at risk.

In fact, a report by the Thales Group found that nearly half of US companies surveyed reported experiencing a breach in the last 12 months.

To protect yourself, it's essential to monitor your credit card activity and other accounts for any suspicious use.

Here are some FDIC tips to help you protect yourself from fraud: