Credit cards, regardless of the type, are one of the most widely accepted forms of payment, and they’re especially convenient when you’re traveling. But if you’re applying for your very first credit card, it can be daunting to know where to start. Here are four important credit card facts you need to know.
Your Credit Score Affects how Much You Can Borrow
Your credit score is a number that represents your financial history and ability to pay back any money you borrow from a lender, such as a bank or other financial institution. It’s calculated by looking at your credit report, which includes information about your past borrowing history and current balances. Credit card issuers use these details to decide whether or not they want to give you a loan — and how much they’ll charge you for it. The higher your score, the more likely it will be that they’ll lend you money at favorable terms.
Credit Cards Aren’t Free Money — but They Can Help Build Wealth
Credit cards can be really risky if not used responsibly because they tend to carry high-interest rates that make it easy for people with bad spending habits to rack up debt quickly. But if used properly and paid off in full each month, credit cards can improve your credit score and help you earn rewards like cash back and miles.
Credit Cards Can Help Build Your Credit History
If you don’t have an established credit history yet, getting one of these cards can help build a record that lenders look at when approving loans and mortgages down the road. And once you’ve had an account open for six months with no late payments or other problems, most issuers will raise your limit automatically — meaning more room for spending!
Beware of Fees and Penalties
Credit card companies tend to make money by charging fees on top of interest rates — which can be pretty high if you don’t pay off the balance each month. Some companies charge an annual fee just for having an account with them (usually $50-$100), while others charge late fees, balance transfer fees, overseas transaction fees, etc. Be sure to review the list of charges before you select a credit card.
