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Getting a Grip on Personal Finances: Credit Cards and Credit Scores

Getting a grip on personal finances: credit cards and credit scores.

If at first you don’t succeed, try, try again: it's a well-known proverb that always gets trotted out to high school and college grads. It’s a saying that encourages perseverance and a never-give-up attitude. It’s good stuff. Everyone needs mental toughness when they’re striking out on their own. When it comes to personal finance, however, “try and try again” is frankly terrible advice. Credit cards and all the concerns surrounding credit can follow you for years if you’re not careful. Here’s a quick rundown of what credit cards and credit scores entail.

How to Choose: Secured Versus Unsecured

There are two types of credit cards to choose from: secured and unsecured. That’s it. The biggest difference between these cards is what’s required of the applicant. With a secured card, your bank or credit card provider will ask you to provide some funds or some other type of collateral upfront. Unsecured credit cards don’t have these stipulations associated with them. So theoretically, an unsecured card should be your better option, right? Not so fast. If you’re a recent graduate or even just someone who doesn’t have a lot of credit history, secured credit cards may be your best shot at getting a higher credit limit.  

Interest Rates

This is where credit card companies make their money. As a rule, the number you want to know when choosing a credit card is the Annual Percentage Rate (APR). This percentage tells you how much interest you can expect to be paying. Fixed APR, or an annual rate that doesn’t change, is very popular with certain card providers and it definitely has its perks. On a monthly basis, the exact amount you’ll be paying depends on a combination of your credit score, the type of card you have, and your monthly balance. Of course, your best chance at reducing interest payments is to clear your balance every month.  

What You Should Know About Credit Scores

A credit score can seem like a scary thing, but once you're familiar with the concept, it becomes much less daunting and easy to understand and maintain.  

What Is a Credit Score?

Your credit score condenses your entire financial situation into a single number that banks and credit card providers can understand right away. This is how lenders let each other know how trustworthy of a borrower you are. The higher your number, the better. Although poor credit can affect everything from taking out loans to making major purchases, the good news is that there are always opportunities for you to improve your score.  

How Is a Credit Score Determined?

While there’s no understating the value of a high credit score, there’s always still the question of how exactly that number is calculated. As you would expect, it’s decided by a combination of things, the biggest contributing factors being the opening of new lines of credit, payment history, how much credit history you have, and the different categories that your credit lines would fall under.  

Keeping a Good Score

Calculations aside, the million-dollar question here is “What can be done to get a high credit score?” No matter what your credit looks like now, you can increase your number with due diligence. For example, simply covering your bills without being late goes a long way. Similarly, taking the time to review your credit report periodically gives you a chance to notice any potential discrepancies that have come up. Pro Tip: Don’t be in a hurry to close your lesser-used credit cards. In fact, make a point of making small purchases on those cards. Counterintuitive as it sounds, paying these cards off regularly is an easy way to bring your credit score up. Personal finance is an area that trips up even the most experienced of individuals. Credit cards and the corresponding effect that they have on your credit score is something you literally can’t afford to overlook. Building up a solid credit history doesn’t have be complicated. With a credit card, you just have to remember that the best decisions are the ones that pay off in the long run.