The good news is that credit cards don’t have to be complicated, and avoiding mistakes doesn’t either. Here’s what you’ll need to know as a first-time credit card user. The card is a physical card, usually plastic or metal, with a unique credit card number and a three-digit card verification value (CVV) number for added security. The card issuer will also determine your annual percentage rate (APR), which is the rate they charge you on any outstanding balance after the payment due date, after the introductory period, if one is offered. These rates are usually high and range from 14.99% to over 21.99%. This is your cost of borrowing the money. Unless you pay the balance in full before the end of each billing cycle, you can avoid paying any interest fees. Each time you make a purchase using the credit card, the purchase amount is deducted from your available credit until you pay it back. The card is tied to a billing cycle, and at the end of each cycle, the credit card company issues a statement itemizing the transactions you’ve made during that cycle, your total balance, minimum payment due, and due date. Also: What is a debit card? Debit cards are connected to an active bank account, usually a checking account. Using a debit card is much like writing a check, except the debit card will immediately be declined if there are not adequate funds for the purchase. For example, if you have a traditional debit card tied to a checking account with a $500 balance, and you use your debit card to make a $600 purchase, the card will be declined. If you’ve chosen overdraft protection from your bank, the transaction may be approved depending on the bank’s amount of protection. Debit cards do not permit you to incur debts and do not impact your credit score. But using a credit card doesn’t come without risks. The good news is that you can offset those risks or avoid them entirely. Also: The 5 best credit cards you can (and should) keep forever Another significant risk is late payments. If you charge more on the card than you can afford to pay or simply forget to make a payment, it can have a major negative impact on your credit score and also result in late fees and loss of your introductory APR. Payment history makes up 35% of your FICO score, which means that it has a big impact on your overall score. Eliminate this risk by making regular payments on the card, whether doing so each week, setting up reminders for payments, or enrolling in automatic payments. Annual fees are another thing to consider with credit cards. Depending on the card you sign up for, there could be an annual fee which will be automatically paid each year on your card. These are usually associated with rewards cards. Review all details of a card before you apply for it to avoid surprise fees you’re not prepared to pay. Also: 10 things to know before getting your first credit card Once you’ve determined specifically what your goals are for using a card, start looking for cards that meet those goals. But in the meantime, also consider details like:
APRFeesRewards programPerks (rental car discounts, hotel discounts, introductory bonuses, etc.)Mobile app optionCompany reputation
