Credit Card
Do's and Don'ts
What is a credit card?
Many companies, such as Mastercard, Visa and American Express, allow students to apply for credit cards.
In most cases, the individual will either need to show a steady source of income or have a parent who is willing to serve as a cosigner, before they issue you a card.
Using a credit card is like taking a loan. You are not using your own money, but you are borrowing money from the company that issued the credit card. The company limits the amount you can borrow each month, and obligates you to pay the money back in accordance with their terms and conditions.
How do credit cards work?Â
Each month, a statement is issued with a summary of purchases made and money owed.
The company requires you to pay back all or a portion of the money borrowed by a specified date.
If you cannot pay back the full amount at the time specified, the company adds an interest charge to your balance.
The bigger the balance, the more interest you’ll have to pay. Running up a large balance with ballooning interest could keep you from establishing a good “line of credit” and reaching your important financial goals.
What is a “line of credit”?
A “line of credit” or “credit line” is the maximum amount a credit card company will lend you for your monthly purchases. Some credit card providers will allow you to exceed your credit line if they see that you consistently pay on time. Â
Â
If you do not pay your bill on time, the credit card company may suspend your account or reduce your “line of credit.” These consequences will affect your ability to obtain credit from another credit card company, department store, or an internet provider such as eBay or Amazon. It may also make it difficult for you to get a bank loan or mortgage in the future.Â
What is a credit score?
A credit score is a numeric grading system that rates your ability to handle financial obligations.
Credit agencies and credit card companies can see your credit score and can often access your credit history.
If they see you as a credit risk, they will not lend you money.Â
A low score can also make it difficult for you to rent an apartment or buy a home.
The best way to build good credit is to pay what you owe to credit card companies as soon as you receive the bill.Â
How do you choose a credit card?
The credit card business is extremely competitive and many offer incentives and benefits to lure you to their product.Â
Some credit cards give cash back when you pay on time, while others give you free travel miles or discounts on gas or groceries.
It’s best to be a wise consumer, and with a parent, review your options, and select the card that can work best for you.
Why is it important to keep credit card information safe?
If someone steals your identity, using your credit card information, they can run up bills that don’t get paid.
Even if you find out about the theft, which could take a while, it can impact your credit score.
To reduce the chances of this happening, be careful with giving out your information, choose strong passwords and shred any mail offers you get for credit cards (after you’ve considered the offer).
