Credit cards 101

Getting your first credit card can be both exciting and intimidating. Credit cards are a great convenience, but remember that they are also a loan that must be repaid. Here are some ideas to keep in mind as you get your credit card and begin using it.

Choosing a credit card - fees, interest rates and benefits

Ideally, the card you choose should have the lowest fees, the lowest interest rate and provide the most benefits when you use it. Unfortunately, there is probably no card that has the best of all three. Choosing the card that is best for you involves weighing these factors and considering how you will use it.

Annual fees can vary from zero to $75 per year. Ideally, you want to choose a card with no annual fee. Watch out for late payment or cash advance fees as well. Be sure to check the terms of the credit card agreement.

Interest rates also vary greatly and can exceed 20%. Be wary of low "teaser" rates, or special rates for a limited time if you transfer balances from another card. Yet another way issuing companies increase the amount you pay is by how they calculate the interest. Be sure to read the details of the agreement.

Many cards offer benefits for using the card. Some credit cards offer "rewards" such as airline miles, travel discounts, electronic gifts, discounts on cars and more. A rule of thumb is that the benefits are usually worth about 1% of the charges. If a card with rewards is important to you, make sure the benefits are those you will actually use and that the other aspects of the card do not offset the benefits. If you often carry a balance, make sure the reward is worth more than any additional interest you will pay.

Be sure your credit card provides the right combination of fees, rates and benefits. If you do not carry over balances and pay finance charges, you might be willing to accept a card that has high rates and maybe even an annual fee if the benefits were your main focus. However, if you normally pay finance charges or interest, pay extra attention to the interest rate.

Guidelines for using your credit card

  1. Pay off the entire balance each month. Avoid charges and build a good credit record.
  2. Keep the credit limit low. Depending on how you are going to use it, $500 or $1000 is high enough for most first-time credit card users.
  3. Make payments on time. You'll build a good credit record and avoid late payment charges.
  4. Use the card for emergencies. Start off slowly with this new convenience. Keep using cash and checks for most purchases, especially until you get comfortable with the card.
  5. Never let others use your card. You are responsible for all charges. Do not let others borrow it or give out the number.
  6. Keep track of your use of the card and compare your records to what shows up on the monthly statement.
  7. Keep the card active. Even if you only plan on using the card for emergencies, use it for small purchases every three or four months just to keep it active. Then be sure to pay off the balance before any interest is due.
  8. Avoid using the card for cash advances. The interest rate charged for advances is usually higher and interest is charged immediately with no grace period.
  9. Create a spending and budget plan. Do not let your credit card payments exceed 20% of your monthly income.
  10. If having a credit card turns out to be a problem, close the account or stop using it for a while.

We can help

If you have questions about credit cards, visit one of our branches or call us at 1-800-288-3425.

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