Understanding how to properly use your credit cards or how to find the best credit card with the most advantageous rewards and perks can be difficult! One thing is certain: it is important to shop around and know exactly what you are signing up for. Let’s explore your options!
Credit cards let you make purchases now and pay for them later, which can help during gaps between paychecks. Many Americans find themselves in that situation at times, waiting for their regular paycheck to “hit” the bank. The only downfall with this is that it can be a dangerous hole if you don’t use a credit card correctly. For example, interest will accumulate and will transfer to the next month if you do not pay it on time or before the bank cycle closes. This is the danger zone for your credit card! Make timely payments to avoid extra fees and accumulating interest charges on your purchases.
When using a credit card, it is important to make sure that you know your interest rate, the time the cycle closes, and when you need to make your payment to avoid paying interest fees. It’s all a matter of being a responsible credit card holder and understanding how to manage your money.
How do Credit Cards Work?
Credit cards have a line of credit, which means that you have a certain amount of “money or credit to use”. When you make a purchase and then pay it off, you replenish the credit. The truth is that you can spend up to the credit limit determined by the issuer, but it isn’t always recommended to do that because your minimum payment can get really high. Limits on your credit card are typically determined by factors like your credit history and income, along with your debt-to-income ratio in some cases.
Every month, you will receive a monthly statement that shows your balance, including any interest charges you may have accrued. You can pay the minimum payment each month, but have extra fees added, or you can choose to pay off the balance in full, which will avoid the interest charges.
These are different from things like installment loans which aren’t revolving lines of credit and instead are a fixed sum that will be paid off over time. Examples of these include things like home loans, personal loans, title loans and automotive loans.
Types of Credit Cards
There are four types of credit cards to choose from, depending on your goals: secured credit cards, balance transfer cards, low-interest cards, and rewards cards. To decide which one is right for you, you should analyze your spending habits, your goals, and check the credit card’s ongoing interest rates and fees. When choosing the right credit card, it should be personalized to your needs. So, if you’re not sure what to look for on a credit card or how to choose the right credit card for your lifestyle, this article will help you narrow it down.
Secured Cards
A secured credit card is one option that can help you build, or rebuild your credit score. It works like a regular credit card but requires you to pay a deposit upfront to guarantee your credit line, and acts as a safeguard for banks to cover any purchases.
This makes it easier for a person who doesn’t have the best credit to get approved. Things to look for in credit-building cards are that the card issuer should offer free FICO credit score access, credit limit increase, and paths to upgrade to a better card. These features can help people with bad credit improve their credit.
Unsecured Cards for Credit Building
Unsecured credit-building cards do not require a security deposit as collateral for your revolving line of credit. With no deposit required, lenders typically rely on a consumer’s credit score for approval. Unsecured credit-building cards may be more difficult to obtain than secured cards, but when used responsibly, they can be used to improve your credit score.
Balance Transfer Credit Cards
Balance transfer credit cards are exactly that, they allow a credit card holder to move debt from one credit card to another. Why would you want to do that, you ask? These types of credit cards can help save on interest due to lower Annual percentage rates for a limited time and potentially help a credit card holder pay off debt faster. It is also a great option for someone who wants to consolidate debt into one card and make a single payment.
Low-Interest Credit Cards
When comparing credit cards, having a low interest rate can come with lots of perks. This technically means that you will pay less money if you carry a balance each month. This is important when you are on a budget and trying to stretch your dollars!
Many low-interest cards offer introductory APRs, such as 0% for a limited time on purchases or balance transfers. Some low-interest cards are useful for balance transfers, allowing you to switch from a higher interest rate to a lower interest rate.
Best Reward Credit Cards
Rewards-based credit cards can allow you to earn perks, like cashback, points, or even airline miles.
These cards are great for people who have good to excellent credit scores. They are suited for people who are looking to earn cash back, points, and miles rather than building credit.
- Cash back cards typically earn a percentage of cash back on your spending.
- Points Cards are beneficial when you want flexibility in how you redeem your rewards. Point-earning cards typically allow you to accumulate points instead of dollars as you spend and give you more options on how to cash in your points, which can include travel, checks, rewards, and other perks.
- Cards that earn miles help you earn airline miles as you spend money with that credit card. You can redeem flights, but there may be restrictions depending on the fine print.
Take into consideration that some rewards cards require you to meet a spending limit before qualifying for special offers. If you are considering rewards, take note of what the credit card is offering you and make sure that it is what you are looking for. Shop around and consider its welcome bonus, spending requirements, and limits.
Final Considerations About Finding the Best Credit Card
The ultimate goal is to choose a credit card with benefits and features that are relevant to you. Everyone has different priorities in life, or can be in different stages, so not every card is the right fit, kind of like Cinderella’s glass slipper. Consider everything that I have mentioned and think about what you really want when it comes to obtaining a credit card. You have choices, best of luck!