Understanding Credit 101
We’re diving into Credit Cards which can be a blessing or curse in our lives depending on how you handle and manage your credit cards.They can be a big step into owning and growing you finances and credit score.
So here we are, here is my advice to own your credit cards and not let them own you.
What Affects Your Credit Score
Your credit score will vary on many variables and that’s why it’s important to diversify your credit portfolio and history of credit. Here is what can decide your future approval odds, credit limits, etc.
History of credit, credit spending limits, credit usage per month, amounts owed, types of credit (types of loans), etc.
Building Credit with Credit Cards
Building your credit is SO important because it allows you to continue to advance, grow and create a life for yourself on your own dime and not having to depend on co-signers for cars, houses or apartments and more.
Starting with a credit card is a consistent, impact and efficient way to grow your credit! When I started looking into credit cards AT 18, my credit score was pulled as “too thin of a file” meaning there was no established history with my credit score. Which rightfully so, I was 18 and didn’t have any loans that I was paying back or existing credit cards.
You are able to build your credit consistently with credits by managing and paying your card back which is all your bank wants. A credit card is an institution loaning you a “short-term” credit and you then pay back within the 30 days. It technically is a loan but not often thought of this way.
Important Notes to Build Credit with Credit Cards:
Always pay your credit card in FULL for the statement balance
Pay on or before the due date - schedule automatic payments if you’re forgetful
Keep your usage under 50% (Max $250 on my $500 limit)
Only put charges on your credit card that you can pay off
A few cards I personally love:
Chase Saphire Credit card - #1 Travel Rewards
Chase Freedom Credit Card - Cash Back card
Capital One Venture Card - Travel Card
My First Credit Card Story
I decided to get the Chase Freedom credit card which was a cash back card. This was the best step I made getting into establishing my credit score! I began putting small but impactful purchases onto my credit card once a month and ALWAYS paying back the statement balance in full on or before the due date. Doing these three things will build and grow your credit. You are showing your ability to pay back borrowed money from loan institutions in the future that you will apply to. For the first few years I would put a gas bill on my credit card, I kept it very small and made sure I could pay it back every month. I wasn’t maxing out my credit card either, I was keeping the usage under 50%.
One year later I had established good credit, even though it wasn’t a long history of credit it still showed my ability to pay back loans. Keep in mind your score is impacted by how long you’ve been establishing credit as well, this is why we never cancel our first credit card opened because you could lose years of history.
One year later I applied for a travel credit card - so exciting when it’s your first one! I was approved for the Capital One Venture Card which gave you rewards per dollar spent on the card towards travel. I made sure to meet the promotion that they offer which was, spend $3,000 in the first 3 months and earn an extra 20,000 air miles. This is something you always want to see if it’s realistic to meet for you. By doing this I got a free flight to mexico with these extra miles.
Since then I have established my credit with multiple credit cards, student loans, a car lease loan and in the future a car loan. You want to diversify your credit if possible meaning not just using credit cards to build it but sometimes you don’t have a choice. I have now earned over 100k+ air miles that I will be saving and earn multiple free flights just for spending on my credit card and getting rewarded daily for each purchase.
My favorite credit card and the one I use the most is the Chase Saphire and it’s rated one of the top travel cards for the best annual fee rate.
Why You Need Credit
Credit is sometimes a mystery and you are never really positive why you need to establish a good credit score. But trust me, as an adult when you’re trying to get approved for large financial purchases you will want an established credit score.
A high credit score is considered anything between 700-800 score. Your credit score will fluctuate monthly which can increase or decrease due to many reasons. Such as, once a large loan is pulled into your credit score your score will decrease or if you paid off a large loan it’s likely your score will increase. You can download apps like Credit Karma which will send emails letting you know when your score changes - it’s good to know when it does and keep track of your score.
The biggest reason you want to establish credit is for purchases like student loans, purchasing a car, buying a house, getting approved for an apartment, applying for a new credit card and sometimes even employers are pulling your credit score. Having a good credit score improves your odds of being approved for new lines of credit and better rates, credit limits and more.
How to Apply to a Credit Card
This is something that is almost completely online and can be done very fast. Applying for a card and then receiving the card to spend on it is only a week or two long process and very easy.
Apply to the credit card you want on the institution website. Be sure to read the terms, conditions, APR and check your approval odds on Credit Karma before applying.
You will then be notified if you were approved or not.
The credit card will then be sent in the mail where you will receive it within a week or two and then you will be able to begin spending on it.
Be sure to get the mobile app for the credit card so you can easily pay it off, schedule payments, view your balance and more.
Credit Card Terminology 101
Annual Fee - This is what is known if you have an annual price you have to pay to have the credit card. Such as credit cards with better rewards (more than often travel cards) can have an annual fee that you pay to then have the card and earn the rewards. For a first card, NEVER sign up for an annual fee card or you’ll be paying that fee forever.
Statement Balance - This is the amount that you owe on your card and spent within your 30 day window. For example, if you spent $100 on your credit card then your statement balance will be $100 and this is the full payment due on your due date.
Minimum Payments - This is the minimum amount you can pay towards your card without getting a late fee. Usually it is a small number such as $25 which sounds tempting to only pay your minimum. If you choose to only pay your minimum fee your APR interest rate will be applied to the remaining balance. Most cards have an APR of 20%+ which can add up fast to even a smaller balance of $100. Always pay your card in full if you can.
Late Fee - If you forget to pay a minimum or balance on your due date this is what you will get hit with. A late fee ranges but is usually around $30-50 and something you can avoid EVERY TIME. Always use automatic payments if you can to avoid this.
My Favorite Credit Card
I personally religiously use the Chase Saphire credit card, you can’t beat the rewards! I received 50,000 sky miles the first 3 months of having the card due to spending the credit limit necessary to receive the promotion (spend $3,000 in 3 months and earn 50,000 miles). I have accumulated over 100,000+ miles by using this card for a majority of my purchases and plan to use these for a big travel trip. You can also redeem your rewards in Amazon purchases, gift cards, hotels, etc. - so you have many options!
To learn more about the Chase Saphire Credit card click here!
* Referral links have been included in this blog.