Credit Card Basics

Getting your first credit card – it’s an exciting milestone. But it shouldn’t be done on a whim.

Here are some things to think about before you apply for your first card.

Do some soul searching

Besides establishing credit, what do you plan to use a credit card for? The answers to these questions can help guide you in the direction of the right card.

• Do you plan to pay off your balances in full and on time every month?
• If not, how much interest can you afford to pay and how will you manage payments?
• Are you primarily interested in maximizing rewards? Rewards cards typically have higher interest rates, so if you’re unable to pay off your balance each month, this type of card might not be worth it.
• Do you want to use a credit card to build or repair your credit?
• Do you shop primarily at one store?

What type of card is best for you?

Another great question to ask as you familiarize yourself with the different options out there and find one that aligns with your preferences.

• Traditional Credit Cards: Operate on major networks like Mastercard, Visa, American Express, and Discover. They have spending limits and can be paid off monthly or over time.
• Secured Cards: Require a deposit equal to the spending limit, ideal for building or repairing credit.
• Rewards Cards: Issued in partnership with another company, like an airline or retailer, offering perks like travel points or cashback. They often charge annual fees and higher APRs. While the concept of being rewarded for spending sounds appealing, if you’re unable to pay off your balance each month, you’ll likely be paying more than you’re getting back.
• Store Cards: These are similar to Rewards Cards, offering perks or cashback, but can typically only be used at the retailer they’re distributed from. Target’s RedCard is one example. Again, if you’re unable to pay off your balance each month, you’ll likely be paying more than you’re getting back.

Understand the lingo

Credit cards may introduce some new terms into your vocabulary. Understand these concepts before you start using your card.

• Annual fee: A flat rate charged for yearly use of a credit card. Some cards charge no annual fee – a good consideration for a first card. Others charge anywhere from $25 or $50 to hundreds of dollars.
• Annual percentage rate (APR): This is the yearly cost of using credit and is used for direct comparison when shopping for the right credit card.
• Finance charge: What you actually pay to use credit. The dollar amount is determined by the amount you borrow, the term, and the APR, and it is applied every month you do not pay your balance off in full.
• Grace period: How many days you have to pay your bill before a finance charge applies.
• Late payment fee: The fee charged if you don’t pay the minimum payment by the due date.
• Minimum payment: The amount you need to pay by the due date. Failure to pay at least this amount will likely result in a late payment fee on the next bill.

Pick one and apply

Once you’ve established which card will work best for you, go ahead and fill out that application. And remember to use your card wisely. It’s a great time to build credit, but not if you run the risk of falling into debt.

UW Credit Union’s Visa® credit cards offer low rates, no annual fees¹ and customized rewards options. Explore our cards today.