Post # 1
Good morning everyone.
I am interested in getting my first credit card. I have a few questions I would like to ask.
1- what is an interest rate?
2-how do I effectively build credit ?
3-if when I have the card and I don’t use it for the month do I have a bill due at the end of the month still? (Example- say I get a 200 dollar credit card and I don’t use it for the whole month. do I still have to pay something at the end of the month?)
4- what age do you recommend people should start building credit?
5- how do I link my checking account to my credit card?
please do not respond saying ask a banker. I am asking for support thank you fellow bees !
Post # 2
1 – an interest rate is the percentage of interest you pay the credit card company for the the money. You only pay interest if you don’t pay your balance in full. i.e., you get a bill due on 5/1/14 for $100 with a 5% interest rate. If you only pay a minimum payment of $10 (for example) by 5/1, you will pay interest on the $90 remaining – so 5% of interest on $90, or $4.50. So now your $100 purchase has actually cost you $104.50. Interest compounds every month.
2- You build credit by charging things on a credit card or taking out loans (mortgage, student loans, car loans) AND paying them back within the terms (making at least the minimum payment). Too many loans and credit cards will HURT your score, as will not paying the minimum payment. Failing to pay cell phones, utility bills, or rent will hurt you, but actually paying them does not help your score. Check out FICO’s website for tons of info about building credit.
3 – You only will pay what you charge, and any interest for an unpaid balance.
4 – I think people should start building credit as early as they can, but they need to be responsible about it. Ideally, parents should educate their children about responsible credit card use.
5 – Linking a checking account for payment can usually be done through the credit card website.
Post # 3
“abbie017: 1 – an interest rate is the percentage of interest you pay the credit card company for the the money. You only pay interest if you don’t pay your balance in full. i.e., you get a bill due on 5/1/14 for $100 with a 5% interest rate. If you only pay a minimum payment of $10 (for example) by 5/1, you will pay interest on the $90 remaining – so 5% of interest on $90, or $4.50. So now your $100 purchase has actually cost you $104.50. Interest compounds every month.”
<div style=”overflow: hidden; color: #000000; background-color: #ffffff; text-align: left; text-decoration: none;”>Just to clarify, the whole interest rate is not applied every month, one 12th is applied every month. So if you had an interest rate of 18% (more realistic for a first credit card) and you finished the month with a $90 balance then you would be charged $1.35 (18/12*.01*90)in interest that month so at the beginning of the next month you will owe $91.35. If you only paid off yout new charges the next month then you would be charged interest on the balance again $91.35*(1+(18/12*.01))=$92.71</div>
Post # 4
MakingHerWait: Ah, fair enough. I pay my balances in full so I don’t mess around with interest stuff
Post # 5
I just wanted to add that some credit cards may have an annual fee, so you could potentially have a charge on the bill without ever having purchased anything. Be sure to check your statements and read the terms of the card carefully.
Post # 6
Where do you live? Different countries have different rules.
Post # 7
AB Bride: I live in New York
Post # 8
Tavien45lyfe: PPs have answered your specific questions but I wanted to advise getting a card that gets you points. So for instance, I never had a credit card before but when I was 22 I got a visa credit card through a store I like to buy work clothes at. So I can use the card to buy groceries and then I get points that give me free clothes at the store. Then at the end of the month I use my debit card to pay off the credit card so I don’t carry a balance. So I’m building credit but also getting rewarded. There are all sorts of cards like this out there, but depending on your situation make sure you don’t get one that costs you money (free airline miles! Now you pay for vacations you can’t afford but took b/c of the free miles)
I have no idea how old you are but I think early twenties is a good time to start building credit because you’ve probably had a few years to get used to paying rent/bills and need to establish credit to get loans for a car/house later. Also, of course it’s good to have in an emergency.
Post # 9
- Wedding: April 2013 - Rhode Island
1- what is an interest rate? Interest is money you owe because you’ve borrowed money from the bank. If you borrow $100 and your interest rate is 20%, then you will have to pay $120*. (*This is assuming you don’t pay off your statement balance at the end of each month, see #2 below for how to avoid ever paying any interest).
2-how do I effectively build credit? Only charge things that you can afford to pay off immediately. Wait for the bill to come at the end of the month (or middle depending on your billing date cutoff) and pay the STATEMENT BALANCE. Not the card balance. Not the amount due. The statement balance. This way you will never incur interest fees or debt. It is the only way to use credit cards safely and effectively build your credit.
3-when I have the card and I don’t use it for the month do I have a bill due at the end of the month still? If you don’t use the card, then you will have a $0 balance. If you use the card in January to buy $100 worth of clothes and only pay $50 when the statement balance comes, then you will still owe the $50 at the end of February even though you haven’t incurred any new purchases. (You will actually owe more than $50 because you will owe $50 + around 20% interest depending on your specific card’s interest rate). Also as someone else mentioned, some cards have annual fees. So you could owe $50-70/year just for owning the card. You should avoid these types of credit cards.
4- what age do you recommend people should start building credit? As soon as possible. Part of what contributes to a good credit score is having a longer history of credit. You can’t do much about this in the beginning when you’re first starting out. But you can do things in the future to keep your history long. For example, never close a credit card. If you no longer want it for some reason (like it gives bad incentives and has an annual fee), then just stop using it and let it close on its own.
5- how do I link my checking account to my credit card? If you apply for a credit card with your bank, it will be done automatically. If you apply for a credit card with a different bank, then you can set up a “pay from” account online. This will allow you to pay your credit card using funds in your checking account. You can also set up your account for autopay so that you never miss a payment. But keep in mind that you need to set it up to pay off the statement balance, not the minimum payment.
Post # 10
- Wedding: April 2013 - Rhode Island
Another tip on building credit: Don’t use all of your available credit. For example, say your credit card has an available balance (i.e. credit limit) of $1000. You should try your best not to use that much. Using less of your credit limit will give you a better credit score. So try to keep your purchases with that card to $500 or less, even though you have the ability to charge up to $1000.
I recommend watching/reading Suze Orman. She gives wonderful financial advice.
Post # 11
If you are getting the credit card to build credit, here is my advice:
To effectivley build credit, you need a few different types of credit. Revolving credit and Installment Credit. Revolving credit is a credit line that is always open, like a credit card. Installment credit is when you buy an item and pay it back over the course of X amount of months…where you know exactly what you owe and how much is due each month and when it will be paid off.
Please do not try to combine the two of these.
Revolving credit- this is where your credit card will come in handy. They will give you a credit limit like $10,000. That doesn’t mean you need to spend that amount. They want to see that you have a lot of open credit (like if your limit is 10k, but you only spend 1k, that means you have 9k of open credit, and that is good). In order to build good credit, just hook your credit card up to something small that you pay every month anyways…like your netflix account and then pay that off every month. You won’t want to carry a balance on your credit card, so make sure whatever you put on there is something you can pay off at the end of the month. Or put a tank of gas on your credit card each month.
Installment credit- you get this credit by purchasing an item, and then breaking the payments up. This is what people get when they purchase a house or a car. But to build good credit, it can be a small item. I went to a furniture store and purchased a couch to start building my credit. They do 12 months of interest free payments…so whatever my payment was, they divide it by 12 and that is my monthly payment each month until it is paid off. You don’t want to get in over your head, make sure it is something you can afford. I could have paid for the couch cash/had the money in my bank, just did their payment plan to build credit. Great way (and safe way) to start building credit.
Post # 12
I just want to add that for your first card, I would look at something without fees, even if you have to give up the rewards. That way you get a better handle on what you would actually use the card for and can try to pick reward programs that are the best for you.
It might be easiest for you to get approved for a card through your bank or credit union instead of going straight to Chase or MasterCard or whatever, especially if you’re young and doing this yourself without a co-signer (like your mom is also on the account).