A young African American woman smiles outside while holding her smartphone and credit card

Financial literacy is important to making smart financial decisions. But if you’ve never had a credit card before, you may not know the best ways to use them. 

We are here to help with this quick guide to credit cards and smart credit card usage. Keep reading to learn the basics of what credit cards are, how they work, when they are a smart choice, how to find the best rate, and how you apply for a card.

Credit Card Basics

Credit cards are a way to access a line of credit that has been issued to you by a credit union or bank. Unlike debit cards, which offer you access to funds that you already have in your account, credit cards allow you to borrow money and pay it back over time.

Once you begin to use your credit card and run up a balance, you will have a monthly payment to repay the funds you have borrowed. In addition, you will be charged an interest rate by the lender for the privilege of borrowing those funds. Once your balance is paid off, you will no longer have to make a payment until you use the card again.

Credit Card Advantages

Credit cards can get a bad rap, but there are some instances in life when using a credit card is a smart financial choice. So when does it make sense to use credit?

Building Your Credit Score

When you are trying to build your credit score (which is essential for many things in life from applying for some jobs to financing a vehicle to applying for housing), you may need to use a credit card or two for a time in order to establish credit. 

With responsible credit use, you can begin to build your credit rather quickly as long as you make all payments on time and don’t use more than 30% of your available credit.

Funding Personal Goals or Emergency Spending

Credit cards can also be a great way to fund personal goals such as taking a trip to study abroad, paying for a wedding, or starting a small side business. In addition, they can help you fund unexpected expenses and emergencies such as a move, medical bill, or car repair. 

As long as you remain committed to paying down your balance and making all your payments on time, credit cards can help more than they can hurt. They can even be a useful alternative to a personal loan in some cases.

Consolidating Debt Payments

In addition, credit cards can be a helpful way to consolidate your debts into one monthly payment. Consolidation can be helpful if you’re having a hard time keeping up with multiple payments.

At Bowater Credit Union, we are dedicated to helping our members build and repair their credit through the use of our beneficial financial products and services. For example, our Bowater CU VISA allows you to combine multiple credit card balances onto one card with a low-interest payment via a no-fee balance transfer. 

Whether you have a handful of balances on prior credit cards or need to utilize a credit card to pay down student loans or medical bills, a low-interest credit card can be a money-saving alternative to paying down your original debt.

Credit Card Rates

Credit card rates are influenced by a variety of factors determined by your lender, including the current Federal Reserve’s prime rate, your credit score, and the type of credit card. 

For example, student credit cards typically offer incentives such as low interest rates for those just beginning to build credit. 

The Federal prime rate fluctuates depending on current market conditions and serves as a baseline interest rate used by most lenders to determine their best rates. Your credit score will also determine your interest rate. A better credit score will equal a lower rate.

How to Apply

When it comes time to apply for a credit card, you will find a variety of options from different types of financial institutions, including online lenders, banks, and credit unions. It pays to shop around and compare different financial products before making your final selection. 

You will want to compare interest rates, fees, and other terms to find the best possible deal. Some credit cards come with an annual fee that can be as high as several hundred dollars, so keep an eye out for any fees.

Many credit cards offer rewards for consumers, such as points for travel or cashback. Research these options as well so you’re sure to get a card that fits your needs and lifestyle.

Guide to Credit Cards: Start Building Credit Today!

Bowater Credit Union is here to help no matter the stage of your financial journey. If you’re just starting out, a credit card can be a great way to build credit, which will be important when you want to make larger purchases in the future.

Learn more about how to responsibly use a credit card to establish or improve your credit rating today!