The Ultimate Guide to Using Credit Cards

Home Manage Money The Ultimate Guide to Using Credit Cards

Want to Score Free Cash?

  • Survey Junkie: Earn up to $50 per survey with one of the highest-paying survey sites on the web. Join Survey Junkie Now
  • SoFi Money: Earning money for unlocking better features sounds like a dream. But this free banking app really pays you $100 with you switch your direct deposit to SoFi Money. Get SoFi Money.
  • Aspiration: This mobile banking app lets you do everything for free and takes no fees — ever. Better yet, if you join through this link you can get $100 in your new account.

Get ready to learn about credit card basics, so you'll be able to choose a card and use it to your best benefit in 2020.

Credit cards 101: Get ready to learn about credit card basics, so you’ll be able to choose a card and use it to your best benefit in 2020.

What is a Credit Card?

A credit card is a type of bank card that will allow you to borrow money from a lender when you make a purchase. Typically, this type of “loan” comes with interest charges or certain fees, which you are required to pay in exchange for the convenience of not using cash for your purchases.

How Do Credit Cards Work?

When you use a credit card to make a purchase, the amount of that purchase is reported to the lender. You will receive a monthly statement from the bank or lender who provided you with the loan to make your purchases, and you are expected to make payments to eventually pay off the entire amount of your purchases, plus any associated fees or interest charges.

How Do Credit Cards Differ from Other Cards?

The main difference between credit cards and other cards, specifically debit cards, is the payment source. Using a credit card is similar to getting a loan for your purchases, whereas using a debit card is more similar to using cash, since that money comes right out of your bank account at the time of purchase.

Types of Credit Cards

Cut Up Your Credit Cards

There are several major types of credit cards to choose from. Different cards will have different interest rates, fees, rewards, and other variations. There are also different options depending on your credit history. Here are a few examples of different credit cards that you may consider:

Want Free Money?

  • Aspiration: Want to get spotted a $100 for free? Simply sign up for Aspiration, and the free banking app will give you cash for free, you just relax while it gives you $100 just for opening a new debit card. There’s no catch. This bank account is legit and only takes two minutes to sign up for an account.

Rewards Credit Cards

Rewards credit cards are just that—cards that offer rewards with various purchases. The types of rewards can range from cash back, airline miles, hotel points, gift cards, merchandise, and more. These cards will often have special promotions, sometimes on a quarterly basis, that offer larger rewards in certain categories, such as gas, groceries, restaurants, travel, home improvement, and more. Your points may double or triple at different times. Other rewards cards have a set schedule when it comes to your rewards points, offering a steady 2% cash back on groceries or gas, for example. As you build up a large amount of rewards, it is helpful to review the options for redeeming the rewards, as they will typically expire after a certain period of time and you will lose the rewards.

A note of caution for rewards credit cards: if you do not habitually pay off your entire balance each month, then the value of the rewards you earn should be carefully evaluated. Paying interest on your purchases will often not be covered by the amount of the rewards you earn.

Low-Interest Credit Cards

Low interest credit cards have several advantages. While you are unlikely to get great rewards deals and promotions, if you are a person who does not pay off their credit card in full each month, then having a low-interest credit card may be desirable. You can even find credit cards with 0% interest, these often come with an annual fee, but it can be worth it in the long run when you are not building up large interest charges.

Balance Transfer Credit Cards

There are many credit card option that offer low interest, or even 0% interest balance transfers. This means you can transfer the balance from another credit card that has a higher interest rate, and pay it off more quickly because you are not accruing large monthly interest charges. When more of your payment goes toward the principal balance on the account (the amount of your actual purchases), you will get the balance paid off sooner.

Cards for Average or Bad Credit

People with average or bad credit often have difficulty getting approved for credit cards. Fortunately, there are several credit cards on the market today that are targeted specifically for this issue. Credit cards for average or bad credit may have certain restrictions, including spending limits, and may also come with higher interest rates and additional fees. For those with especially bad credit, there may be a requirement for a “down payment,” or an amount that is held in escrow to make payments in the event that payments are not made in a timely manner. This is similar to a security deposit, meaning if payments are made on time for a certain number of months, the deposit may be refunded or applied to the outstanding balance. For those with average or bad credit, this type of credit card may offer an opportunity for raising a credit score, which would create options for other types of credit cards with lower interest and fees, or even rewards.

Student Cards

Students may have difficulty obtaining credit because of a lack of credit history and limited income. There are credit cards that are available specifically for students, which allow them to have more flexible spending and also have the opportunity to build credit and eventually have a great credit score. When it comes time to make a larger purchase requiring credit, such as a new car after graduation, having a credit history that shows regular, timely payments toward a credit card can significantly help their situation, making them eligible for lower interest rates and higher credit limits.

Reasons to Get a Credit Card

Although there are risks to having a credit card, such as living beyond your means or forgetting to make the monthly payment on time (both of which can negatively impact your credit for a long time), having a credit card can be a very responsible way to build credit. When you make purchases using a credit card, and then repay the card as agreed, you will raise your credit score slowly but surely. Having good credit is very important, as it is something that may impact your ability to rent an apartment, obtain a mortgage, buy a car, get a loan, or even secure a great job.

Cost of Carrying a Credit Card

Credit cards do come with a cost. Some come with obvious costs, such as annual fees. The interest that you pay is also a cost of having a credit card, if you do not pay the balance in full each month. These costs should be carefully considered before applying for a credit card (or multiple credit cards). Many people find that the convenience and benefits outweigh the costs, but this is a personal decision and having a credit card requires you to be disciplined and responsible.

How Many Credit Cards Should You Have?

The answer to this question is tricky, because it depends on your unique situation. When starting out, having a single credit card is the best option. Once you build credit and qualify for better deals, you may want to apply for new credit cards. It is usually best to only apply for a new credit card when your other credit card(s) are paid off. Getting a new credit card does allow you to make more purchases, but you will also be paying more interest on those purchases if you do not pay your balance in full. When you do get a new credit card, it can be wise to keep the old one as an open line, even if you do not use it. One factor that is considered in your credit history and credit score is the age of your oldest credit line. Even if the credit card is not used, it still counts positively toward your overall credit score because it is a credit line in good standing and you have the history of making proper payments.

Tips for Effective Credit Card Use

Most of the tips for effective credit card use involve good common sense. Be sure that when you make purchases, you can actually afford them. A new television or gaming system may sound like a good idea, but unless you make regular payments and pay off the balance, the cost of those purchases will be far greater than the sale price you paid. Aim to pay off your balance in full before making new major purchases. If you use your credit card for daily expenses, such as gas and groceries, then be sure to keep track of those purchases so that you don’t overspend. One of the most common problems, overspending, is completely avoidable in most situations with responsible habits.

Want To Earn Easy Money?

  • Survey Junkie: Earn up to $50 per survey with one of the highest-paying survey sites on the web. Join Survey Junkie Now
  • Mistplay: Earning money by playing games on your phone sounds like a dream. But this app really pays you for playing new games with cash rewards. Download Mistplay for Free (Android only).
  • Robinhood: This investing app lets you trade stocks and do everything for free and takes no fees — ever. Better yet, if you join through this link you can get a free stock like Apple, Ford, or Sprint when you join (must complete signup).

How to Build Your Credit Score?

Millennials make up a significant portion of Americans that are Credit Invisible or Credit Unscorable – those with no or low credit scores. That’s 80 percent of 18-19-year old’s and 40 percent of 20-24-year old’s that fit into these categories. Those are statistics that can’t be ignored.

Those who are among the credit invisible group are vulnerable to predatory lending and face significant challenges in accessing most mainstream credit markets. To avoid being among the credit invisible for long, it’s never too early to start building and improving that credit score now. With 15 percent of your score based on your credit history, it’s important to take action today.

Here are two smart steps to take to build credit—so you can live a life by design, not by chance:

1) Become an authorized user on your parent’s or spouse’s credit cards – if they have good credit. Being an authorized user and paying those debts on time adds positive credit history to your own credit files, even before you can qualify for your own card. And when you can get your own credit card, use it responsibly. Beware of applying for multiple credit cards especially in a short period of time. Each of the related ‘hard inquiries’ can hurt your credit score and if you could also be seen as a risky borrower.

2) Pay your bills on time. Thirty-five percent of your credit score is based on your payment history, and late payments can hurt your score. It’s easy to solve this by setting up auto payments and reminders so that you don’t ever miss a payment. You need to treat your rent just like any other bill – it needs to be paid on time. If you don’t pay your rent or if you’re late with your payments, your landlord can report you to the credit bureaus.

The Best Apps to Save You Real Money

We are on our phone a lot, right? Wouldn't it make sense to save money with the best money saving apps?

AppAt a glancedownload
Get a $100 bonus at Aspiration when you open and fund an account with $10 or more. Then use your Aspiration debit card to make at least $1,000 worth of cumulative transactions within 60 days of account opening.
Open a new account in the next 24 hours and you could get up to $200 in free stock.
Truebill reviewTruebill
This free app delivers on its promise to save you money effortlessly. You can use it to lower your bills, cancel unwanted subscriptions and bill negotiations.

About the author

Brian Meiggs
Brian Meiggs
Brian Meiggs is a personal finance expert, and the founder of My Millennial Guide, a personal finance site helping you put more money in your pocket. He helps millennials follow the smart money in order to increase their earning potential and start building wealth for the the future. He regularly writes about side hustles, investing, and general personal finance topics aimed to help anyone earn more, pay off debt, and reach financial freedom. He has been quoted as a top personal finance blogger in major publications including Yahoo! Finance, NASDAQ, Discover, MSN Money and more.


Please enter your comment!
Please enter your name here

On a similar note...

Explore More On

7 Best Bank Bonuses and Promotions of March 2021

aspiration★★★★★This Company Will Give You $100 for Opening a Free Account
Boost your savings and earn up to 1.00% APY interest on your savings. Get up to 10% cash back on your purchases. Get $100 bonus when you spend your first $1,000 with your new Aspiration Plus Card.
personal capital★★★★★
The First and Only Interest Earning Crypto Account
Receive up to $250 Bitcoin bonus when you make qualifying deposits over the first 30 days. Receive up to 8.6% annually on your crypto. Join the most trusted financial services for crypto investors on the market.
personal capital★★★★★Get Up $200 in Free Stock for Joining
Commission-free stock, ETF and options trades. Get a free stock worth up to $200 when joining (must complete application). Simple, easy to use investor platform with no account minimums.
sofi★★★★★All-In-One Investing That's Easy to Use
Tired of Robinhood? Invest in stocks, ETFs, crypto, or automated investing in all one app. No commissions for stocks and ETFs. Complimentary access to SoFi Financial Planners.
personal capital★★★★★The Smart and Free Way to Manage Your Money
Take control of your finances with the perfect union of technology and highly personalized service. Get access to free online financial tools, including retirement planner, investment checkup, net worth calculator and more. Digital-first wealth management advisor with 24,000 clients in 50 states.
blooom★★★★★401K and IRA Management
Start your free 401k and IRA management now. Find and reduce hidden fees. Improve your diversification.
cit★★★★★Enjoy the Benefits of a CIT Bank Money Market Account
A CIT Bank Money Market Account helps you get more from your savings with interest rates for maximum growth. Earn over 7x the national average with high-interest rates. It now pays to open a money market account with CIT Bank.
My Millennial Guide