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Understanding Credit Cards
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Caitlin
Student Contributor
Posted May 5, 2016
1. You don’t need to have a certain number of credit cards
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Having more credit cards doesn’t necessarily mean that you will increase your credit score. In fact, having more credit cards can actually hurt your credit score. The more credit cards you have, the more liable you are to have more debt to pay off, making you a higher risk to the credit companies. Each time you apply for a credit card, your credit score takes what’s considered a “hard hit,” meaning your credit score goes down. For example, if you apply for new cards at multiple stores that offer a one-time discount, your credit score will be lowered. Having one credit card can still do a lot for you in terms of building a positive credit history. It’s not necessary to have more than one.
2. Your balance isn’t just the amount you pay interest on
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The balance on your credit card is the total amount of money that’s been borrowed, not just the money due on your statement. That means when your financial institution reports your credit card balance to the credit bureaus, it’s not just informing them of the amount you owe on your statement, it’s telling them the total amount owed on your card. If the balance being reported is higher than 50% of your total limit, your credit score could go down.
3. Pay everything off right away
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It’s really important to get into the habit of paying off purchases as you make them. So instead of using your credit card to purchase things when you don’t have the money for it, try budgeting so that you can afford to make purchases on your credit card, and pay off balances as soon as you are able.
4. Watch for annual fees and interest rates
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As tempting as a store credit card can be, watch out for the interest rates and annual fees that come with them. Reward credit cards can have interest rates over 20% which is over double the amount of regular credit cards, and their annual fee can cost you hundreds of dollars. It’s important to understand the rewards versus the fees to make sure that you’re actually getting a deal.
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