If you are first time credit card owner, learning the terms and maximizing its benefits seem like a daunting task. Doing your research and knowing how to best utilize your credit card is a great step towards building a good financial future. Here’s a few of the most important terms and tips to learn if you’re intending to open your first credit card as a college student!
- Credit Line – This is the amount of money that your bank or creditor is allowing you to borrow every month.
- (Tip: Use the 30% Credit Utilization Rule meaning you should only borrow 30% or less than your credit line every month. This will ensure that your credit score remains high.)
- Credit Score – This number ranges from 300 – 850. This number is comparable to a grade in which you the creditor determines how well you did in terms of borrowing and paying your debt back every month. This can also determine your future eligibility for other credit cards, apartment leases or even purchasing a car.
- (Tip: You can check your credit scores annually at AnnualCreditReport.com for free using these three credit rating companies – Equifax®, Experian®, and TransUnion.)
- Minimum Payment Due – This is the minimum amount that you are required to pay monthly. The amount is often disclosed in the paperwork sent by your creditor or bank when you first open your credit card. However, it is important to keep in mind that if you only pay the minimum, the remaining balance carries over to your next statement with added interest.
- (Tip: To prevent yourself from compounding interest and leaving a balance, split your monthly payment into two. This allows you to pay in smaller amounts and builds a good financial relationship between your credit and your creditor!)
- Payment Due Date – This is the day in which your payment is due. You are expected to pay the amount is in your statement balance listed during this day. Paying a day or two before is ideal.
- Next Closing Date – Closing date is to not be confused with the payment due date. “The closing date is when the creditor calculates the finance charges and adds them to the balance. The credit card company also prepares your bill on this date. Know that your balance on the statement closing date is the balance that will be reported to the credit bureaus.” – Credit Card Account Statement Closing Date: What Does it Mean and How Does it Affect You?
- Cash back – This term is used by many creditors to pull you into using their credit card company. By offering incentives like “cash backs” first time credit users, including college students, are more likely to open one. But what exactly is a cash back? Cash backs are rewards or bonuses that you can redeem for every purchase. For example, if you earn 1% cash back on every purchase you earn a cent for every dollar.
- (Tip: Many credit cards offer cash back programs for college students. Check out “Student Credit Cards and the Importance of Building a Credit History” to compare different credit cards and one that best suites you. Redeeming these cash backs vary for every credit card but asking a specialist or contacting the bank for more information is a great step to earning those rewards!)
Credit cards are a great way to learn and manage your finances as a college student and young adult. Knowing its significance and mastering the terms will allow you to prosper financially and hopefully avoid any fees and low credit score in the future!