7 Ways to Save Money When You are Young and Naive
A lack of experience or knowledge shouldn’t stand in the way of smart money moves.
When it comes to selecting a credit card, it’s way more complicated than choosing from the largest credit card companies, like Visa, MasterCard, American Express or Discover. There are cards for bad credit, good credit, rewards, cash back, specific stores and more. Deciding which type of credit card is right for you comes down to a few factors, which we’ll go over below.
The most important thing to think about when you are going to get a new credit card is your credit score. Credit card companies have specific criteria for their different card offerings, and it’s usually based on your credit score. But just because you have bad credit, it doesn’t mean you won’t qualify for a credit card. It just means you won’t be able to qualify for the best rates or a specific type of card. Here are some types of cards based on your credit score.
If you have poor credit, usually meaning a credit score of around 650 or less (it varies based on whether a lender is looking at a FICO score or a VantageScore), you often won’t qualify for some of the more prestigious cards, like rewards cards and cards with low interest rates.
The best bet for you might be a secured card or a card with a low credit limit.
A secured credit card is named because you give the credit card company a deposit to secure your debt. Meaning that if you want a credit card with a $1,000 limit, you would send the credit card company $1,000, then you would get a credit card with that amount. Yes, it’s not the best setup in the world because you must pay for the credit line. But it can help you build your credit back up and get you on the right path. Usually after a year or two, you should have upped your credit score enough to qualify for an unsecured card, and you can request one from the company and get your deposit back.
Some companies also offer what are called student credit cards for people with a limited credit history. The company will offer you a credit card with a low credit limit, but with high interest rates. Make sure with either of these types of cards that you are keeping below a debt-to-credit ratio of 20 percent, and that you are not carrying a balance. This will help you increase your credit score.
Store credit cards could also be an option, especially if you have poor credit because you are just starting out your credit history. These cards are available through different stores you shop at and usually have a limit between $500 and $1,000. Again, the interest rates are higher on these cards and you need to make sure to pay off your balances each month.
Credit card companies tend to offer their best credit cards to people with the best credit. These types of credit cards include rewards cards, cards with extremely high credit limits, cash-back cards and cards with other special perks and offers. Some of these cards also include annual fees for additional perks.
These cards are meant to be paid off every month, otherwise your interest payments will eat into your points and bonuses you’ve earned.
There are four main types of credit cards out there:
Within each of these categories are many sub-categories. The line can be blurred depending on what kind of card you need and the promotional offers the company is touting. For example, zero/low-interest cards and balance transfer cards can be one in the same, as balance transfer cards usually have zero interest for a set period of time. Zero-interest cards can also be combined with rewards cards that can offer zero percent interest on purchases for the first three months.
This card is great when you need to make a big purchase and need some time to pay it backAlways take note of when the introductory period ends so you can manage the debt strategically.
|Type of Credit Card||Credit Score Needed||Average APR||Best Used…||Important Notes|
|Secured Credit Cards||Bad credit or no credit needed||Higher than unsecured cards||When you have a low score and need to build credit||You put money down and are given that amount in “credit.” Make sure these cards report to the credit bureaus before opening. All other kinds of cards are considered unsecured credit.|
|Zero / Low Interest Credit Cards||Fair – Excellent||Offer zero-percent interest rates or a low-interest rate for a set period of time. Standard rate after introductory period is still low compared to other cards.||This card is great when you need to make a big purchase and need some time to pay it back.||Always take note of when the introductory period ends so you can manage the debt strategically.|
|Reward Credit Cards||Fair – Excellent, Bad credit or no credit is okay for many store cards||Tends to higher, since you earn rewards||When you can make strategic purchases for certain items that you can pay off in-full at the end of each billing cycle||Rewards credit card come in tons of different flavors. The main ones are general rewards cards, cash-back cards and travel rewards cards. Most store credit cards also fall into this category because you get discounts and rewards at the store.|
|Balance Transfer Credit Cards||Fair – Excellent||These credit cards offer either zero percent or a very low rate when you transfer a balance from another card to this card.||When you have a finite amount of debt you can repay quickly interest-free.||Note that most of these cards come with a balance transfer fee between 3-5%. Sometimes you can find a card with no balance transfer fee, but the amount you can transfer may be lower.|
Rewards cards are the most popular credit card category out there, mainly because there are so many different variations depending on what you want to get out of your credit card. General rewards cards give you points for all your purchases that can then be redeemed for myriad things.
With cash-back cards, your purchases earn you cash back that you can either use toward payments or in receiving a check at the end of the year.
Depending on the retailer, store cards offer you discounts and special offers throughout the year. You can earn cash-back on purchases to use at the store, or you can always receive a 20 percent discount on purchases. As you spend more on your store card, you often are invited to special perks, like discount shopping days and even free tailoring.
Travel rewards cards are the most complicated of the rewards bunch because so many kinds are offered. You have to break it down even farther. There are overall travel cards that give you points for every travel purchase you make, then there are airline rewards, gas rewards and hotel rewards.
For overall travel cards, you can get discounted travel through their web portals when you use your points. You can also redeem your points on travel purchases made with the card. There are usually additional perks you get with these cards, such as access to lounges or concierge options.
For niche travel cards, large credit card companies partner with brands from these areas to offer you everything from free hotel nights to free checked bags when you use their particular brand.
Figuring out the best card for you depends on your finances and what you are looking for in a card. Make sure to know your credit score and your credit history before applying to any credit card. Whenever you apply for a new credit card, you will have a hard inquiry on your credit report; these inquiries can drop your credit score for a bit. Know what you plan to buy with your credit card. If you are going to use your card mainly when you travel, getting a travel rewards card may be a good idea.
But if you plan to use it on everyday purchases, it might be best to get a card that has a low interest rate or offers rewards for all purchases instead. Understanding your payment style will help, too. If you are someone who carries a balance, try to stay away from rewards cards, as interest rates will eat up any rewards you’ll earn.
Article last modified on October 30, 2019. Published by Debt.com, LLC