{"id":2605,"date":"2023-05-12T15:48:41","date_gmt":"2023-05-12T15:48:41","guid":{"rendered":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/?post_type=chapter&#038;p=2605"},"modified":"2025-08-28T03:08:03","modified_gmt":"2025-08-28T03:08:03","slug":"credit-cards-learn-it-1","status":"web-only","type":"chapter","link":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/chapter\/credit-cards-learn-it-1\/","title":{"raw":"Credit Cards: Learn It 1","rendered":"Credit Cards: Learn It 1"},"content":{"raw":"<section class=\"textbox learningGoals\">\r\n<ul>\r\n\t<li>Learn about credit card ownership and its risks and benefits<\/li>\r\n\t<li>Learn what a credit score is, what impacts a credit score, and how it reflects a person's creditworthiness<\/li>\r\n\t<li>Understand what is include in a credit report<\/li>\r\n<\/ul>\r\n<\/section>\r\n\r\n[caption id=\"attachment_2170\" align=\"alignright\" width=\"350\"]<img class=\"wp-image-2170\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/605\/2016\/09\/23165935\/12696032183_0d9622ae98_z.jpg\" alt=\"Close up of corners of four credit cards on a table, fanned to show their logos: 2 Visas and 2 Mastercards\" width=\"350\" height=\"197\" \/> Figure 1. Credit cards can be helpful, but need to be handled correctly[\/caption]\r\n\r\n<h2 data-type=\"title\">Getting and Using a Credit Card<\/h2>\r\n<p id=\"fs-idm377654880\">One of the most controversial aspects of personal finance is the use of\u00a0<span id=\"term58\" class=\"no-emphasis\" data-type=\"term\">credit cards<\/span>. While credit cards can be an incredibly useful tool, their high interest rates, combined with how easily credit cards can bury you in debt, make them extremely dangerous if not managed correctly.<\/p>\r\n<p>For many college students, who may not have a lot of money or even a job at all, owning a credit card may seem out of reach.\u00a0 Still, it can be important to build a credit history for certain opportunities down the road (such as getting a loan to buy a house).<\/p>\r\n<p>You may be surprised to learn that there are plenty of companies that offer special options for younger customers, especially students. The following are some offers to look for:<\/p>\r\n<ul>\r\n\t<li><strong>Error forgiveness<\/strong>: Since\u00a0you\u00a0may be new to the\u00a0responsibility of owning\u00a0a credit card, it\u2019s good to look for plans with error forgiveness. This may\u00a0include a zero-percent annual percentage rate (APR) for the first six months of a contract or waive\u00a0user penalties if you miss or have\u00a0a late monthly payment for the first time.<\/li>\r\n\t<li><strong>No extra fees<\/strong>: Along with zero-percent APRs for the first six months, some credit cards don\u2019t charge students for using their cards in other countries. This feature is nice for students interested in studying or traveling abroad.<\/li>\r\n\t<li><strong>A report to all three credit\u00a0<\/strong><b>bureaus<\/b>: Student credit cards should report to all three major credit bureaus. It's important for TransUnion, Equifax, and Experian to have records of your credit history because they use that information to calculate your credit score. Your credit score will be used to evaluate your credit worthiness for loans and more.[footnote]Cannon, Ellen and Melissa Lambarena. \"How to Choose a Student Credit Card.\" <em>NerdWallet<\/em>,\u00a028 Oct 2021, www.nerdwallet.com\/article\/credit-cards\/choose-student-credit-card .[\/footnote]<\/li>\r\n<\/ul>\r\n<h3>How to Use a Credit Card<\/h3>\r\n<p>All the benefits of credit cards are destroyed if you carry credit card debt. <em><strong>Credit cards should be used as a method of paying for things you can afford<\/strong><\/em>, meaning you should only use a credit card if the money is already sitting in your bank account and is budgeted for the item you are buying. If you use credit cards as a loan, you are losing the game.<\/p>\r\n<section class=\"textbox proTip\">\r\n<p>Every month, you should pay your credit card off in full, meaning you will be bringing the loan amount down to zero dollars. If your statement says you charged $432.56 that month, make sure you can pay off all $432.56. If you pay off your bill in full every month, you won\u2019t ever pay any interest on the credit card.<\/p>\r\n<p>But what happens if you don\u2019t pay your bill off in full?<\/p>\r\n<p>If you do not pay your statement balance in full, you must pay daily interest on the entire amount from the date you made the purchases. Your credit card company, of course, will be perfectly happy for you to make smaller payments\u2014that\u2019s how they make money. It is not uncommon for people to pay twice as much as the amount purchased and take years to pay off a credit card when they only pay the minimum payment each month.<\/p>\r\n<\/section>\r\n<p>When looking at your credit card balance, you may see two different balances shown - the <strong>statement balance<\/strong> and the <strong>outstanding balance<\/strong>. It is important to understand the difference between these two numbers.<\/p>\r\n<section class=\"textbox keyTakeaway\">\r\n<div>\r\n<h3>statement versus outstanding balance<\/h3>\r\n<p>A credit card <strong>statement balance<\/strong> is the amount of money that you owe on your credit card at the end of a billing cycle. This balance includes all of the purchases, cash advances, balance transfers, and fees that were charged to your card during that billing period, minus any payments or credits that were applied to your account.<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>The <strong>outstanding balance<\/strong> of a credit card is the total amount of money that you currently owe on your credit card account. This includes the statement balance plus any new purchases, cash advances, balance transfers, and fees that have been charged to your card since the last billing cycle.<\/p>\r\n<\/div>\r\n<\/section>\r\n<h4>What to Look for in Your Initial Credit Card<\/h4>\r\n<ol id=\"fs-idm380104608\">\r\n\t<li>\r\n<p id=\"fs-idm327913440\"><strong>Find a Low-Rate Credit Card:<\/strong> Even though you plan to never pay interest, mistakes will happen, and you don\u2019t want to be paying high interest while you fix a misstep. Start by narrowing the hundreds of card options to the few with the lowest APR (annual percentage rate). However, be mindful of introductory offers of low APR, as those are likely to change to much higher APR rates after the introductory period is over.<\/p>\r\n<\/li>\r\n\t<li>\r\n<p id=\"fs-idm358440560\"><strong>Avoid Cards with Annual Fees or Minimum Usage Requirements:<\/strong> Your first credit card should ideally be one you can keep forever, but that\u2019s expensive to do if they charge you an annual fee or have other requirements just for having the card. There are many options that won\u2019t require you to spend a minimum amount each month and won\u2019t charge you an annual fee.<\/p>\r\n<\/li>\r\n\t<li>\r\n<p id=\"fs-idm372474256\"><strong>Keep the Credit Limit Equal to Two Weeks\u2019 Take-Home Pay:<\/strong> Even though you want to pay your credit card off in full, most people will max out their credit cards once or twice while they are building their good financial habits. If this happens to you, having a small credit limit makes that mistake a small mistake instead of a [latex]$5,000[\/latex] mistake.<\/p>\r\n<\/li>\r\n\t<li>\r\n<p id=\"fs-idm354595936\"><strong>Avoid Rewards Cards:<\/strong>\u00a0Rewards systems with credit cards are designed by experts to get you to spend more money and pay more interest than you otherwise would. Until you build a strong habit of paying off your card in full each month, don\u2019t step into their trap.<\/p>\r\n<\/li>\r\n<\/ol>\r\n<section class=\"textbox tryIt\">[ohm2_question hide_question_numbers=1]6202[\/ohm2_question]<\/section>","rendered":"<section class=\"textbox learningGoals\">\n<ul>\n<li>Learn about credit card ownership and its risks and benefits<\/li>\n<li>Learn what a credit score is, what impacts a credit score, and how it reflects a person&#8217;s creditworthiness<\/li>\n<li>Understand what is include in a credit report<\/li>\n<\/ul>\n<\/section>\n<figure id=\"attachment_2170\" aria-describedby=\"caption-attachment-2170\" style=\"width: 350px\" class=\"wp-caption alignright\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-2170\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/605\/2016\/09\/23165935\/12696032183_0d9622ae98_z.jpg\" alt=\"Close up of corners of four credit cards on a table, fanned to show their logos: 2 Visas and 2 Mastercards\" width=\"350\" height=\"197\" \/><figcaption id=\"caption-attachment-2170\" class=\"wp-caption-text\">Figure 1. Credit cards can be helpful, but need to be handled correctly<\/figcaption><\/figure>\n<h2 data-type=\"title\">Getting and Using a Credit Card<\/h2>\n<p id=\"fs-idm377654880\">One of the most controversial aspects of personal finance is the use of\u00a0<span id=\"term58\" class=\"no-emphasis\" data-type=\"term\">credit cards<\/span>. While credit cards can be an incredibly useful tool, their high interest rates, combined with how easily credit cards can bury you in debt, make them extremely dangerous if not managed correctly.<\/p>\n<p>For many college students, who may not have a lot of money or even a job at all, owning a credit card may seem out of reach.\u00a0 Still, it can be important to build a credit history for certain opportunities down the road (such as getting a loan to buy a house).<\/p>\n<p>You may be surprised to learn that there are plenty of companies that offer special options for younger customers, especially students. The following are some offers to look for:<\/p>\n<ul>\n<li><strong>Error forgiveness<\/strong>: Since\u00a0you\u00a0may be new to the\u00a0responsibility of owning\u00a0a credit card, it\u2019s good to look for plans with error forgiveness. This may\u00a0include a zero-percent annual percentage rate (APR) for the first six months of a contract or waive\u00a0user penalties if you miss or have\u00a0a late monthly payment for the first time.<\/li>\n<li><strong>No extra fees<\/strong>: Along with zero-percent APRs for the first six months, some credit cards don\u2019t charge students for using their cards in other countries. This feature is nice for students interested in studying or traveling abroad.<\/li>\n<li><strong>A report to all three credit\u00a0<\/strong><b>bureaus<\/b>: Student credit cards should report to all three major credit bureaus. It&#8217;s important for TransUnion, Equifax, and Experian to have records of your credit history because they use that information to calculate your credit score. Your credit score will be used to evaluate your credit worthiness for loans and more.<a class=\"footnote\" title=\"Cannon, Ellen and Melissa Lambarena. &quot;How to Choose a Student Credit Card.&quot; NerdWallet,\u00a028 Oct 2021, www.nerdwallet.com\/article\/credit-cards\/choose-student-credit-card .\" id=\"return-footnote-2605-1\" href=\"#footnote-2605-1\" aria-label=\"Footnote 1\"><sup class=\"footnote\">[1]<\/sup><\/a><\/li>\n<\/ul>\n<h3>How to Use a Credit Card<\/h3>\n<p>All the benefits of credit cards are destroyed if you carry credit card debt. <em><strong>Credit cards should be used as a method of paying for things you can afford<\/strong><\/em>, meaning you should only use a credit card if the money is already sitting in your bank account and is budgeted for the item you are buying. If you use credit cards as a loan, you are losing the game.<\/p>\n<section class=\"textbox proTip\">\n<p>Every month, you should pay your credit card off in full, meaning you will be bringing the loan amount down to zero dollars. If your statement says you charged $432.56 that month, make sure you can pay off all $432.56. If you pay off your bill in full every month, you won\u2019t ever pay any interest on the credit card.<\/p>\n<p>But what happens if you don\u2019t pay your bill off in full?<\/p>\n<p>If you do not pay your statement balance in full, you must pay daily interest on the entire amount from the date you made the purchases. Your credit card company, of course, will be perfectly happy for you to make smaller payments\u2014that\u2019s how they make money. It is not uncommon for people to pay twice as much as the amount purchased and take years to pay off a credit card when they only pay the minimum payment each month.<\/p>\n<\/section>\n<p>When looking at your credit card balance, you may see two different balances shown &#8211; the <strong>statement balance<\/strong> and the <strong>outstanding balance<\/strong>. It is important to understand the difference between these two numbers.<\/p>\n<section class=\"textbox keyTakeaway\">\n<div>\n<h3>statement versus outstanding balance<\/h3>\n<p>A credit card <strong>statement balance<\/strong> is the amount of money that you owe on your credit card at the end of a billing cycle. This balance includes all of the purchases, cash advances, balance transfers, and fees that were charged to your card during that billing period, minus any payments or credits that were applied to your account.<\/p>\n<p>&nbsp;<\/p>\n<p>The <strong>outstanding balance<\/strong> of a credit card is the total amount of money that you currently owe on your credit card account. This includes the statement balance plus any new purchases, cash advances, balance transfers, and fees that have been charged to your card since the last billing cycle.<\/p>\n<\/div>\n<\/section>\n<h4>What to Look for in Your Initial Credit Card<\/h4>\n<ol id=\"fs-idm380104608\">\n<li>\n<p id=\"fs-idm327913440\"><strong>Find a Low-Rate Credit Card:<\/strong> Even though you plan to never pay interest, mistakes will happen, and you don\u2019t want to be paying high interest while you fix a misstep. Start by narrowing the hundreds of card options to the few with the lowest APR (annual percentage rate). However, be mindful of introductory offers of low APR, as those are likely to change to much higher APR rates after the introductory period is over.<\/p>\n<\/li>\n<li>\n<p id=\"fs-idm358440560\"><strong>Avoid Cards with Annual Fees or Minimum Usage Requirements:<\/strong> Your first credit card should ideally be one you can keep forever, but that\u2019s expensive to do if they charge you an annual fee or have other requirements just for having the card. There are many options that won\u2019t require you to spend a minimum amount each month and won\u2019t charge you an annual fee.<\/p>\n<\/li>\n<li>\n<p id=\"fs-idm372474256\"><strong>Keep the Credit Limit Equal to Two Weeks\u2019 Take-Home Pay:<\/strong> Even though you want to pay your credit card off in full, most people will max out their credit cards once or twice while they are building their good financial habits. If this happens to you, having a small credit limit makes that mistake a small mistake instead of a [latex]$5,000[\/latex] mistake.<\/p>\n<\/li>\n<li>\n<p id=\"fs-idm354595936\"><strong>Avoid Rewards Cards:<\/strong>\u00a0Rewards systems with credit cards are designed by experts to get you to spend more money and pay more interest than you otherwise would. Until you build a strong habit of paying off your card in full each month, don\u2019t step into their trap.<\/p>\n<\/li>\n<\/ol>\n<section class=\"textbox tryIt\"><iframe loading=\"lazy\" id=\"ohm6202\" class=\"resizable\" src=\"https:\/\/ohm.one.lumenlearning.com\/multiembedq.php?id=6202&theme=lumen&iframe_resize_id=ohm6202&source=tnh\" width=\"100%\" height=\"150\"><\/iframe><\/section>\n<hr class=\"before-footnotes clear\" \/><div class=\"footnotes\"><ol><li id=\"footnote-2605-1\">Cannon, Ellen and Melissa Lambarena. \"How to Choose a Student Credit Card.\" <em>NerdWallet<\/em>,\u00a028 Oct 2021, www.nerdwallet.com\/article\/credit-cards\/choose-student-credit-card . <a href=\"#return-footnote-2605-1\" class=\"return-footnote\" aria-label=\"Return to footnote 1\">&crarr;<\/a><\/li><\/ol><\/div>","protected":false},"author":15,"menu_order":4,"template":"","meta":{"_candela_citation":"[]","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"part":4885,"module-header":"learn_it","content_attributions":[],"internal_book_links":[],"video_content":null,"cc_video_embed_content":{"cc_scripts":"","media_targets":[]},"try_it_collection":null,"_links":{"self":[{"href":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/wp-json\/pressbooks\/v2\/chapters\/2605"}],"collection":[{"href":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/wp-json\/wp\/v2\/users\/15"}],"version-history":[{"count":28,"href":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/wp-json\/pressbooks\/v2\/chapters\/2605\/revisions"}],"predecessor-version":[{"id":15762,"href":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/wp-json\/pressbooks\/v2\/chapters\/2605\/revisions\/15762"}],"part":[{"href":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/wp-json\/pressbooks\/v2\/parts\/4885"}],"metadata":[{"href":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/wp-json\/pressbooks\/v2\/chapters\/2605\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/wp-json\/wp\/v2\/media?parent=2605"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/wp-json\/pressbooks\/v2\/chapter-type?post=2605"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/wp-json\/wp\/v2\/contributor?post=2605"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/wp-json\/wp\/v2\/license?post=2605"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}