The Five Things You Should Know Before You Apply for a Credit Card

Carrying a credit card is a big responsibility. There are certain rules you need to follow. I wish I had known about these rules when I got my first credit card. I might not have made some of the mistakes I did.

Secured Versus Unsecured Credit Cards

A secured credit card is usually backed by some kind of cash deposit. Think of it as collateral. The risk level is somewhat lower on these types of cards. It is a good option for those who do not have a lot of credit or a bad credit history. An unsecured credit card has more risk to it because there is no cash deposit. It is not backed by anything. The card issuer takes more risk when they approve a customer for one of these cards. When people speak of credit cards they are most likely to be speaking of unsecured credit cards, whether they know it or not. Unsecured cards are not what normally comes to people’s minds when considering credit cards.

The Grace Period

Think of the grace period as a safety net. You get between 21-25 days to pay the amount you owe. The grace period gives you a few extra days. How does it work? For example, your period is between March the 5th and April the 4th. The date you owe your payment on is May the 1st. You can buy anything you want without any interest until May 1st hits. Now, say you do not pay the full balance by May 1st. Now, you are going to owe interest on whatever you bought, including the interest. That adds up. You can also contact your financial institution, whether they are Highland Financial or some other institution, for their advice on how to handle the grace period.

The Effects on Your Credit Score

Your credit cards can have a positive and negative impact on your credit score. Your score is affected by a lot of things, including payment history (35%), open accounts (10%), and length of your history (15%). It is important that you pay attention to caring for your credit cards.

Credit Calculation

Your score calculates a few things, including line-item and aggregate utilization. You can win this game, but you need to know it is played. You need to stay informed on your credit calculation. That way you can make better choices on your purchases. You want to get the most out of your money.

What About the Rewards?

There are rewards that some cards offer, but you need to know and understand what they are about. Each time you make a purchase you incur an interchange fee. The rewards are simply a certain amount of interchange fees you have accrued over time. You can get anywhere from 2-6% cash back on the purchases you make. The only downside is that a lot of the rewards are capped. Some of them might appear too good to be true. Check your statements. You are not always getting the rewards they promise you.