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You guys, credit cards can be scary. I remember when I started looking for my  first credit card. I knew that credit cards could get you in a lot of trouble. I also knew that I might not be approved, and that applying for too many would hurt my credit, which made me afraid to apply for any. And that’s pretty much all I knew. Years later, I know A LOT more about picking out a credit card, plus I’ve learned it’s not nearly as scary as I thought it was. Here’s what you need to know about choosing the right credit card.

#1 – Look at the APR

You’re probably somewhat familiar with that fun little acronym. It stands for Annual Percentage Rate, and it basically dictates the amount of money a credit card company can charge you if you don’t fully pay off your credit card each month. Say you have 14% APR and you spent $1,050 on your credit card last month. You pay the minimum of $50, so the other $1,000 on the statement is what you’ll pay interest on. Different companies calculate this differently, so you’ll have to ask your bank exactly how the APR is calculated.

Here’s the thing, if you’re using your credit card right, the APR shouldn’t matter too much. The reason is because you should be paying off your credit card balance in full each month anyways. If you don’t, it can cost you a lot of money and hurt your credit. So take a look at the APR when you sign up for a credit card, but know that it’s not the most important factor unless you plan on getting yourself into debt with said credit card.

#2 – Figure out the Fees

Most credit cards have an annual or sometimes even monthly fee. This is more important than the APR because it’s completely outside your control. Look for credit cards with no or really low monthly fees. The only exception is if you plan on using a credit card for its specific perks AND if those perks outweigh the annual fee.

#3 – Consider the Perks

There are a lot of different perks that credit cards can offer. You can get different percentages for cash back for different categories or collect travel credit. Think about what’s going to be the most valuable to you and whether or not you’ll be able to use the credit cards for their perks. Don’t be too drawn in for the sign-up bonuses they offer, especially if you have to spend way more in the first 3 months than you normally would. Oftentimes they’ll give you an extra bonus if you spend in the range of $4,000 in the first three months. But if you  normally only spend $3,000 in three months, then the bonus is going to need to be more than $1,000 for it to be worth it to you.

As far as monthly perks, even if you’re only getting 1% back, that’s free money. Unless you’re not paying off your monthly balance. If you only use your credit card for $200 of groceries each month and get 1% back on that, that’s only $24 a year, which sucks if your annual fee is $100. These are the types of things you need to evaluate when you’re picking out a credit card. Be realistic about your spending habits and also of your current financial situation.

#4 – Preapproval: What it is, how to use it

One helpful thing credit card companies do is let you see if you qualify for preapproval. This isn’t any guarantee that you’ll be approved for the credit card once you apply, but it should give you a good indication. It’s basically a soft check on your credit, which is helpful since too many hard checks can hurt your score.

#5 – Low or no credit? Try this.

If you somehow made it out of college without getting a credit card, you might discover that it’s harder to get one now, especially if you have either low or no credit. A good option for you is to use a secured card, which is sort of like a credit card with training wheels. It gives a credit card company an opportunity to see how well you do with a credit card since there isn’t any other data (credit history) to go off of.

Here’s how it works. You give them a certain amount of money, usually a few hundred dollars, which becomes your limit. Each month you pay your bill like it’s a normal credit card and it will start slowly building your credit. After a few months, they should graduate you to a normal credit card. Make sure you read up on the secured card to ensure that they WILL graduate you to a regular credit card. Also make sure that they report your payments to credit bureaus, otherwise it doesn’t actually build your credit.

That’s pretty much it

No seriously, those are basically the only things you need to look at when you’re picking out a credit card. Of course, there are other things related to having a credit card that you’ll probably want to know too. Half the anxiety about picking out a credit card is knowing whether or not you can use it the right way! Here’s what you need to know.

Now that you have it, use it well!

Pay off your monthly balance!

This can’t be stated enough. It seems so simple, but so few people actually do this and really suffer because of it. Credit card companies make their money off of people who don’t pay their  balance each month. Be one of the few that actually gains money from their credit card.

One of the best ways to ensure that you pay off your monthly balance is to set up automatic payments. With my bank, I can set it up to pay the minimum balance, the statement balance, or another balance of my choosing. Set up your automatic payments to AT LEAST pay the minimum each month, in case you forget. Missing a payment entirely is the quickest way to hurt your credit. I’d highly recommend setting it up to automatically pay your entire statement balance though.

Don’t forget about their extra perks!

In order to get the most out of your credit card, make sure to read up on all the perks they offer. This can feel tedious, but it could save you hundreds of dollars. Most credit cards offer purchase protection, which is awesome. It’s essentially an extended warranty on everything you buy with that credit card. So if your iPhone breaks three months after you bought it and you opted out of Apple Care, see what your credit card company can do for you. Credit cards also often provide things like free rental car insurance. Make sure you know what they have to offer!

Some credit cards require you to use your cash back or travel vouchers within a time period or you lose them. Don’t lose them! Pay attention to whether you need to opt-in to certain cash back rates or use your points by a certain day.

How it will affect your credit score

When you first sign up for a credit card, it might lower your score at first. That’s because credit checks can affect your score. In the long run, though, it’ll raise your score (if you use it right!) because you have to have credit in order to show that you’re responsible with credit. The best thing that you can do for your credit score is to pay off the balance each month.

Other important things to know

We touched on the statement balance vs current balance vs minimum payment before, but I think it’s worth defining them again because I found these terms really confusing at first.

Statement Period: You’ll get 12 statements a year from your credit card, each covering a length of time (about a month) called the statement period. You’ll have to check your last statement to see when your statement period begins and ends, as the dates can vary depending on the company. A statement’s due date must fall on the same day each month. For example, your statement period might be from August 6 to September 5th.

Statement balance: All the money that you put on the card during that time frame (August 6-September 5 if using the example above) will be your statement balance. Your bill for that statement period will be due at least 21 days after the statement ends, so September 26th or later. Again, this varies depending on the credit card, so make sure you check your statement so you know when to pay your bill.

Current balance: This is just what it sounds like–everything on your credit card (that hasn’t been paid off yet) to date. Usually your statement balance will be lower than your current balance.

Minimum payment: This is the minimum amount you’re required to pay on the credit card without it being considered a missed payment. The minimum payments are usually very low. If all you do is pay the minimum payment, it could take you 20+ years to pay off some balances without even adding more money!

Don’t Overthink it

I know I probably just gave you information overload, but this is seriously ALL you need to know. Don’t overthink it. You have all the knowledge you need now to make an informed decision. Weigh all the options and pick the one that’s right for you. You’ve got this.

Wanting to learn more about your personal finances? I also have information on the following topics:

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