Getting approved for your first credit card is exciting! You’ve taken a big step towards building good credit. You’ve probably heard about credit card rewards, and are hoping to start earning those, too.
After the excitement wears off, you’ll probably have tons of questions- like, when exactly do I pay my cards? How much do I have to pay? How will I know if I’ve paid enough, or if my credit score is getting better?
With this many unknowns, is a credit card worth the worry? Short answer – yes! With a little bit of background knowledge, figuring out your first credit card can be a breeze. We’ll give you a quick explanation of why a credit card is worth the hassle (in case you’re not already convinced!) and some key terms to get you started. In our next two posts, you’ll get some quick tips for best practices on spending and paying your card.
Why do I need a credit card again?
The biggest reason to get a credit card is to build your credit score. It’s not glamorous, but you need a good credit score to do everything from renting an apartment to buying a car or a home. Buying a home might seem far in the future right now, but a good credit score can make a huge difference in the mortgage rates you’re offered, and that all starts with your first card. According to recent data from Lending Tree, even just improving from the “good” to “excellent” range (or, 719 to 760+) saves you over $15,000 on average over the course of the mortgage.
A good credit score is something many people don’t think of until they need it. However, changing your credit score quickly is not easy, so making positive, credit-building choices a part of your everyday financial routine is important. Other benefits include improved safety when shopping online, and the potential for earning rewards. Who doesn’t love getting free money and benefits just for spending money? As long as you keep your spending and payments in check and on time, you can take full advantage of these benefits!
First Credit Card: Terms to Know
Now that you have your credit card in hand and have logged into your card’s website, you’ve probably noticed lots of different numbers and dates. For a beginner, it can be hard to decipher what’s what, and what you actually need to pay attention to. Here are the 5 most important terms to know:
- Current Balance: This is the total amount you currently owe to your credit card, but you don’t have to pay it right away. This amount is the difference between the total amount you’ve spent on your card and the total payments you’ve made.
- Statement balance: This is the amount you owe to your card by the due date listed. If you don’t pay this amount by the due date, you’ll owe interest on whatever portion you don’t pay (depending on your interest rates).
- Statement due date: This is the date that you need to pay your statement balance by, to avoid interest payments and late fees.
- Minimum payment: This is the *minimum* amount you can pay to your card to avoid a late fee and a missed payment ding on your credit report. This isn’t what you should be aiming to pay, though.
- Credit line: This is the maximum amount you can charge to your credit card at any given time. If your current balance equals your credit line, you’ve maxed out your credit card.
Now that you have some basic knowledge, you’re well on your way to responsible credit card management! With a few tips on spending and paying your bills, you’ll be ready to start using your first credit card. Stay tuned for the next post in this series, where we’ll give you some guidance on spending on your new card.