If you’re thinking of getting one of the zillions of credit cards out there, make sure you know these 10 nuggets of credit card wisdom before signing up.
A credit card is not a debit card
If someone asked you to explain the difference between a credit card and a debit card, what would you say? We hope you’d tell that someone that using a credit card is like taking out a short-term loan for a purchase. Also, despite appearances, a credit card doesn’t work like a debit card, which takes money directly from your checking account.
You get extra points if you mention that a credit card carries interest, which you can avoid if you pay your credit card bill in full before the end of the billing cycle.
The real reason to get a credit card
People will say you need a credit card to build credit, but “need” is too strong a word. A credit card can help you build credit, and a good credit score can help you save money on loans down the road (mortgages, auto loans, etc.).
Some might argue that cash back rewards are the real reason to get a card, but that’s not nearly as important as maintaining and building your credit score.
The two types of credit cards
Credit cards come in two types: secured and unsecured. Secured means you’ll have to put down a cash deposit. A secured credit card is a good type of credit card for those with low or no credit. The downside is your card limit is likely the same amount as your cash deposit. An unsecured credit card also has a card limit, but instead it’s determined by your credit history and income.
All about that APR
The APR you see thrown around in commercials and ads refers to an annual percentage rate. It’s okay if you don’t remember what APR stands for, but you’ll always want to check the actual percentage of an APR before applying for a credit card. After all, the APR is what you’ll be charged if you don’t pay off your full balance when payment is due, and some APRs can be as high as 30%.
Watch out for nonstandard fees
Some credit cards have nonstandard fees—which, as you may have guessed by the name, are atypical. Good credit cards don’t deal with nonstandard fees, such as an audit fee, conversion fee, quarterly technology fee, and security fee.
Plan on paying more than the minimum payment
If you were to pay only the minimum required payment on your credit bill each month, you just might never pay off your credit card. As a best practice, try to pay off your credit card in full each month—in other words, don’t spend money you don’t have.
Watch out for an annual fee
If you’re not going to use a credit card frequently, you’re likely better off getting a credit card without an annual fee. These fees can cost as much as $100 to $300 per year. However, not all credit cards with annual fees are bad, and there are plenty of cards without them.
Understand credit card benefits
Credit card benefits come with their own terms and conditions. For example, you may be enticed by cash back rewards only to find that said rewards are limited to qualified purchases or change from quarter to quarter. If you don’t understand the ins and outs of a credit card’s benefits, you likely won’t get the most out of your credit card.
A credit card agreement is binding
Signing up for a credit card means you’re entering a legal contract. Make sure you’re comfortable with the terms and conditions set forth by the issuer, such as APR, fees, and credit limits.
Be sure to shop around
There are countless credit cards out there, so do some comparison shopping before you sign up. Don’t let yourself feel pressured to sign up for a store credit card when you’re at checkout. Taking a few minutes to look at what other credit cards are out there can save you some serious dough in the future.
Image: Adobe Stock
Citi Rewards+℠ Card
- The Citi Rewards+℠ Card - the only credit card that automatically rounds up to the nearest 10 points on every purchase - with no cap.
- Earn 15,000 bonus points after you spend $1,000 in purchases with your card within 3 months of account opening; redeemable for $150 in gift cards at thankyou.com
- 0% Intro APR on balance transfers and purchases for 15 months. After that, the variable APR will be 13.49% - 23.49%, based on your creditworthiness. Balance transfer fee — either $5 or 3% of the amount of each transfer, whichever is greater.
- Earn 2X ThankYou® Points at Supermarkets and Gas Stations for the first $6,000 per year and then 1X Points thereafter. Plus, earn 1X Points on All Other Purchases.
- The standard variable APR for Citi Flex Plan is 13.49% - 23.49%, based on your creditworthiness. Citi Flex Plan offers are made available at Citi's discretion.
Card Details +