You got your first credit card! All you have to do now is make responsible financial decisions to establish good credit. Sounds easy, right? Misusing your credit cards can make getting out of credit card debt a stressful affair. So how can you become credit smart and avoid all that?
How to Become Credit Smart
Opening that first credit card is a big decision and a major milestone. It’s important that you become credit smart so you understand the terms and the responsibilities associated with it. If you use credit responsibly, credit cards are a good way to build credit. Building credit is important when it comes time to make a big purchase such as buying a house or a car.
So, what should you know about credit cards to become credit smart?
- Credit Card Basics – Although a credit card looks like a debit card, it is much different. Using a credit card to make a purchase is similar to taking out a short-term loan. It should be paid at the end of the billing cycle. On the other hand, a debit card draws money directly from your checking account- basically paying in cash electronically.
- Unsecured vs. Secured Credit Cards – Secured cards are backed by cash as collateral to eliminate the risk of nonpayment. Unsecured cards have a limit based on income and credit history. They are not backed by collateral. Therefore, it makes them more risky to lenders.
- Understand Credit Reports – A credit report outlines a detailed account of a person’s financial history. The credit reports also show personal information such as:
- Date of birth
- Past and present addresses
- Social security number
- Employment history
- Collection accounts, inquiries, credit contact information
- Consumer statements
- Public records
- Payment history and
- Account summaries.
The Fair and Accurate Credit Transaction Act entitles consumers to one free credit report each year from each of the three main credit bureaus. Consumers can request copies of their reports by visiting www.AnnualCreditReport.com.
- Know the Terms of the Card – Make sure you learn about the interest rates, payment schedule and any fees associated with the card. Interest rates can vary widely, as can fees. Consequently, these costs can add up quickly, especially if you’re not aware.
- Start With a Low Limit – Build credit by keeping the credit limit low until you can handle an increase responsibly. Maintaining a low limit will also help guard against the temptation to overspend.
- Pay on Time and in Full – Build good credit by paying your credit card bill on time each month. Additionally, it is also smart to pay the bill in full in order to avoid unnecessary interest charges and fall into debt.
- Know Your Credit Score – Finally, be sure to know and monitor your credit score, as it represents the all information on your credit report. The most common scoring system is called a FICO score and ranges anywhere from 300 to 850.
If you are struggling to pay off debt speak with a certified debt counselor counselor at ACCC today. Call 800-769-3571.