While some people fear credit for one reason or another it is a vital part in establishing a good credit score. We want to give you the 411 on credit cards so you will no longer fear them but use them as a tool to create better credit which in turn can provide you with lower interest rates - saving you money!

Credit Card Misconceptions

• A credit card is NOT a debit card - While they carry many of the same features the major difference in debit cards and credit cards is where the money is drawn when a purchase is made. When a consumer uses a debit card to make a purchase the money comes from their bank account. When a credit card is used for a purchase the money is draw from a line of credit that is billed at a later date.

• Applying for a new credit card will hurt your credit - When you request to “pull” your credit even now a then will not have a negative effect on your credit score. However, too many “pulls” will give the impression that you’re having financial difficulties. Additionally, getting approved will lower your credit utilization ratio which is a plus on your credit score so long as you do not incur additional debt.

• Cancelling your credit cards will help your credit - Reducing your available credit without reducing your debt increases your credit card utilization ratio, which will hurt your score.

CREDIT CARDS FAQ

What types of credit cards are there?

Secured credit cards are for people who are just beginning to establish their credit, or who are rebuilding their credit. These cards typically require a deposit beforehand which in many times this becomes the spending limit on the card. This is just a security mechanism for the banks to make sure that they get their money back in case you default on payments.

Unsecured credit cards are for something with fair to excellent credit, these are the most common type of credit cards. These cards do not require a deposit and you can freely borrow money with a certain limit or interest rate. These are great for building credit.

Can you get cash back or other benefits with a credit card?

There are specific cards designed to give you special rewards from travel cards, balance transfers, gas rewards, cash back rewards, retail credit cards, and student credit cards. These reward programs are designed to incentives you to get rewards based off of your buying habits.

How do I get a credit score without any credit history?

There are a number of options on the market for people with limited credit history. Shop around for credit cards with the lowest APR and fees you can qualify for. If you are having issues getting approved consider getting a secured credit card which requires a security deposit or you can ask your parents to add you on theirs as an authorized user on one of their cards.

What makes up a credit score?

While their are many factors that go into your credit core and each reporting agency has their formulas; late or missed payments, frequency of credit inquiries, and your credit utilization ratio all play a role.

What is a credit utilization ratio?

This is the amount of debt you have compared to your total credit limits. If you max out your credit limits then you will have a high credit utilization ratio which will have a negative effect on your credit score. Try to keep your debt on your accounts to 50% or lower of your credit limits.

How old do you have to be to get a credit card?

Typically 18 years old is the minimum age to apply independently for a credit card. However, you can become an authorized user on a parental credit card under the age of 18.

What are the advantages to using a credit card vs. a debit card for online purchase?

Credit cards usually have more purchase protections on top of additional warranties and rewards. The biggest difference is with fraudulent purchases. If someone makes a fraudulent purchase with your debit card that comes directly out of your checking account. Even with getting a refund it could take weeks to months to get that money back. With a credit card you can dispute the charges and the funds will never leave your account.