Since the 1960s when credit cards gained popularity, plastic has become more common to use than paper. Adults and teens alike use credit or debit to pay for their expenses. Most teens tend to start on debit cards, and while there is nothing wrong with those, having and using a credit card is vastly more significant as you can build credit, earn rewards, and start your future as an adult.
We understand that credit cards can be scary and there is so much to know and so many things to avoid, yet there is a lack of financial education and literacy for today's youth. But don't worry, in this article, we will go over some do’s and don'ts when it comes to credit card usage.
After you apply for a credit card and get approved, you get assigned a credit limit. This limit is the maximum amount of money you can charge to your credit card. Let's say your new credit card has a monthly limit of $5000, every month that is the most amount of money you can spend with that specific card.
Now it is reasonable to assume that you can and should spend as much as you want, as long as it's under the limit, but this is a common mistake many people make with their first card. Credit utilization affects your credit score, so never go over your credit limit or max out your credit card (going up to the limit). Going above or maxing out your credit limit can have preposterous consequences on your credit score.
According to US News Money, you should only spend up to 30% of your limit monthly. For example, if we pretend again the limit on your card is $5000, it would be wise to only use around $1500 of that.
Another move you should always make to stay informed and make wise decisions regarding your credit is checking your credit report. A credit report has information about your payment history, accounts you have held, and other pertinent information such as credit limits.
It is a must-do to check your credit report because sometimes there may be mistakes and inaccuracies that can impact you negatively. It is important to report these mistakes and sort them out immediately. Checking can also shift your perspective in terms of seeing what a potential lender would see. If you were a lender and you saw your credit report, would you want to lend this person a loan? Experian says that checking your credit report is just as important as checking your bank statements and bills, as they are all important in terms of managing your finances.
Each billing cycle for a credit card, there is a minimum payment you must make. This can be a fixed fee like $25-50 dollars, and some credit card companies use a percentage of your balance like 1%-5%.
Instead of paying this fee, which is the minimum, you should always pay more if you can. Just paying as much as you should will not hurt you, but paying more can provide you with many benefits. Nerd Wallet, a personal finance company, argues that paying your minimum payment will leave you in good standing but it won't get you much progress when it comes to reducing and erasing your credit card debt.
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