Things To Know About Credit Cards

Here are a few things millennials should know about how credit cards work and why credit cards aren’t just another way to borrow money.

Paying interest is a choice

Credit cards often get a bad reputation because of their high interest rates or fees. The right way to think about it is that paying interest or fees on a card is a choice. The only way to pay a finance charge on a credit card is by choosing not to pay the balance in full each month.

If you use a credit card as responsibly as you would a debit card or cash, there’s nothing to fear. On your statement, you’ll see the “statement balance,” which is the amount you need to pay to avoid rolling balances and incurring interest charges.

You don’t need one (but they can help)

An article tells the tale of millennials who, because they have no credit history, found it more difficult to get car loans or rent an apartment. If only they had opened a credit card even a year earlier, most would have likely sailed through the car loan or apartment application process.

A credit report is to your finances what a college transcript is to your academic performance. Having no credit history to speak of can make it more difficult to get a loan in the future to buy a car or home or even to rent a home.

There are two ways to play the credit card game

Some avoid credit cards like the plague or use them only sparingly, fearing the consequences of accumulating debt. On the other extreme, a very small minority sees them as a financial tool to exploit, taking advantage of sign-up bonuses on travel rewards cards to go on vacations, giving rise to online communities dedicated to “travel hacking.”

Thus, the approaches can be divided between low-effort strategies designed to simply check a box on a credit report and high-effort ones meant to collect every last mile or point from credit card bonus offers.