Getting a credit card is a great first step toward building credit. If you want to attend school, purchase a car, or buy a home, credit will help you qualify for and receive a good rate on a loan. It can also help you get better deals on car insurance and qualify for a cell phone plan. Here’s what you need to know before you get your first credit card in Newark, Delaware.
An Introduction To Your First Credit Card in Newark
Before we get started, it’s important to discuss what a credit card actually is. Similar to a debit card, you can use a credit card to make purchases of just about anything. The difference, however, is that when you make a purchase, the credit card is not taking money out of your checking account. Instead it’s “adding money to your tab”—so to speak. At the end of the billing cycle—about 30 days—you’ll be responsible for paying that tab with the money you have in your checking account.
How Interest Rates Work
If you pay the entire balance off each month, nothing happens. Credit cards allow you to “borrow” money (similar to taking out a small loan) without any penalties so long as you pay that money back at the end of the billing cycle. If, however, you only pay off some of the balance, you’ll be charged interest on the remaining balance at the end of each day until you pay it off.
This rate is called your Annual Percentage Rate (or APR)—the interest rate you’d pay at the end of a year. Divide this rate by 365 days, and you’ll find the interest rate you’ll be charged on your unpaid balance each day. Multiply that number by the balance left on your credit card, and you’ll find out how much you’ll be charged in interest that day. That amount will be added to your balance, and the next day the process will repeat all over again using the new balance.
How Credit Cards Affect Your Credit
Making your credit card payments on time helps you to establish credit. Credit is proof that you can make your payments on time. It shows that you are trustworthy with money. If you’ve been able to do so in the past—by paying for your credit card bill each month, for example—then business and banks are more willing to offer you loans or payment plans that require monthly payments.
Your credit score (or FICO score) is determined by a combination of your payment history, the length of your payment history, and the percentage of your credit limit that you’re using. If you make your payments on time, continue to do so for several years, and don’t use more credit than you can pay off, your credit score will continue to build. This will allow you to take out student loans, purchase a car, or buy a home—and get good interest rates on all of it.
Not only can credit cards help you to build credit, but they can also provide rewards. DEXSTA Federal Credit Union provides two VISA cards perfect for your needs. DEXSTA VISA Platinum is an everyday card with a low interest rate. DEXSTA VISA Platinum Rewards allows you to earn points on every dollar you spend. You can redeem those points for travel and merchandise rewards. Our credit cards have low interest rates, and no annual fee. Come to one of our branches for more information about our credit cards in Newark, Delaware.