A Beginner’s Guide to Credit Cards

If you’re a young adult or becoming financially independent, then chances are the world of credit cards may be new to you. Credit cards have become an integral part of how people pay for the things they want or need. However, there’s more to having a credit card than just carrying around a small piece of plastic in your wallet. This article will explain what a credit card is and how it should be used. We’ll also provide some tips to first-time applicants for selecting a new card.

What is a credit card?

Credit cards are tools that allow you to conveniently buy the things you need without using cash. This is generally done with a small plastic or metal card that you carry around in your wallet. Whenever you’d like to make a purchase, you can charge it to the card and pay for it later.

Every month, once the billing cycle ends, you’ll receive a statement from the card issuer detailing how much you owe. You’ll have the option of paying off the entire balance in full, making just the minimum monthly payment, or an amount in between. Any amount that goes unpaid becomes part of what’s called a revolving balance, and interest charges will start accruing daily based on the APR (annual percentage rate) associated with your account.

How do credit cards help people build credit?

Even though many people think of credit cards as a helpful way to buy something now and pay for it later, they can also help you build your credit score. This number ranges between 300 and 900 and indicates your creditworthiness. A higher score means it’s more likely that you’ll be approved by credit card issuers and lenders for other credit cards, mortgages, and auto loans.

Your credit score is based on your credit history, which is maintained by the two major credit bureaus in Canada: Equifax and TransUnion. Throughout your life, all your debt payments – good or bad – will be reported to these two credit bureaus. If you are ever late or miss a payment, it will be recorded as a negative mark in your credit history and will lower your FICO Score. So, it’s smart to always use your credit responsibly right from day one.

What should I look for when getting my first credit card?

When choosing your first credit card, look for these features:

Low eligibility requirements

It may be hard to qualify for many conventional credit cards since issuers often want you to have an already established, positive credit history. For this reason, it’s wise to consider student credit cards. These are credit cards that cater to young individuals just getting started on their financial journey.

No annual fee

Some of the premier credit cards will offer great benefits. However, they will also charge an annual fee simply to be a cardholder. Since you’re just getting started, you may want to look for options that are free, such as the Triangle Mastercard.

Rewards

Though you may not yet qualify for a credit card with a rewards system as generous as the World Elite MasterCard, some entry-level credit cards still offer a small rewards program. This can be a fun and helpful way to build up cash back just for making regular, everyday purchases.

The bottom line

Credit cards are a convenient means of buying things now and paying for them later. While this may be their practical purpose, cardholders should also use them responsibly to build up their credit scores and position themselves to qualify for future financial opportunities. First-time applicants should look for low-cost cards with minimal eligibility requirements and the potential to earn rewards.