Credit cards are a powerful financial tool when used correctly. Understanding how they work and how to use your credit card correctly is key. These FAQs about credit cards will help you understand these handy tools.

What is a credit card?

A credit card allows you to make purchases on credit. When you buy something with your credit card, you do not use your money to pay for it. You are in fact borrowing money from a credit card company to fund your purchase. This allows you to buy things you need even if you don’t have the bank balance to cover that purchase.

How does a credit card work?

Every credit card has a monthly payment deadline. You get a credit card statement a few days before the payment is due. This statement includes details of all your purchases for the month and how much you owe the credit card company. This amount must be paid off before the deadline mentioned in the statement.

How is a credit card different from a debit card?

A debit card pulls money directly from the bank account it is associated with. If you buy something with a debit card, you must have sufficient funds in your bank account to cover the purchase. If you don’t have the required balance in your account, you won’t be able to buy that item.

Is there any advantage of using a credit card instead of cash?

There are several advantages of credit cards over cash. For one thing, carrying a credit card around is more convenient than carrying cash. The risk is also lower if your credit card gets stolen. You can simply call the credit card company and get the card blocked. It is several times more difficult to recover stolen cash.

Another advantage is that a credit card allows you to buy something you need even without sufficient cash balance. This is a huge benefit, provided that you don’t misuse it. Overspending on credit without the ability to pay the money back can leave you in debt.

The biggest advantage is that using a credit card allows you to build your credit score. There is no way to do this when you pay by cash.

How can a credit card help build my credit score?

When you make your credit card payments, they are reported to the credit agencies. Making all of the payments on time will help build your credit score slowly and steadily. The key is to make sure that all credit card outstanding payments are made within the deadline. Late or missed payments can be detrimental to your credit history. Even one late payment is enough to damage your credit score. In addition, you will also incur late payment fees and expensive fines.

How many credit cards do I need to build credit?

There is no right number. You can build credit with just one credit card provided that you use it responsibly and make all payments on time. When you are starting out, it is better to start with just one credit card. Keeping track of just one payment date will minimize the risks of you accidentally missing any payments. You can add another credit card later, but do this only if you’re getting any special advantage. Don’t add credit cards just for the sake of it or for the sole purpose of building credit history.

Are credit cards the same as prepaid cards?

No, they aren’t. You use a prepaid card the same way as you use a credit card, but they work differently. With a prepaid card, you load a certain amount of money onto the card. This card then acts as a wallet that you use to pay for purchases. The difference is you can only spend the amount that is loaded onto the card. You cannot buy on credit. When you’ve spent the money that you loaded on your prepaid card, you can’t use it anymore until you reload it. The benefit of a prepaid card is that it limits your spending to what you can afford and protects you from getting into debt. You cannot build your credit score with a prepaid card.

What is the minimum age for getting a credit card?

In the United States, the minimum age to apply independently for a credit card is 18 years. If you wish to get one before you turn 18, you can request a parent to add you to their account as an authorized user.

What info will I need to provide when applying for a card?

Most credit companies will ask for basic personal information including your name, address, Social Security number, and contact details. Students may need to provide the name and address of their school in addition to their primary address.

Can I get a credit card with limited or no credit history?

If you’re a student, you may find it easier to get approved for a student credit card. These cards are specially meant for students who have not yet built their credit history. To qualify you will have to submit proof that you are enrolled in a qualified college or university. Make sure to read the details carefully before you apply for a student credit card. Some come with higher rates of interest and expensive fees.

What is a cashback credit card?

Cashback is a type of reward associated with some credit cards. When you use a cashback credit card, you get some cash in the form of points with every qualified purchase. You can then use the points against the redemption options that your card offers. Cashback credit cards are great only if you pay off the card on time every month. The small cashback amount will not offset the high interest and fines you will incur on late payments.

Credit cards offer a lot of benefits, from the ability to buy on credit to providing opportunities for building credit history. The key is to make sure that you use your credit card responsibly and clear all payments on time.

Still Have Questions?

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