Beyond the Wallet EP 6: Credit Card Considerations

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Free travel, points, cashback – everyone is quick to celebrate their credit card perks. But in this video, I’m going to help you learn more about getting a credit card so when you finally make that first step – you’re prepared.

Hey MoneyLion, my name’s Austin Hankwitz and I talk about personal finance and investing online. I grew up in a small town in northeast Tennessee and I couldn’t qualify for a credit card until I was 22 years old. Now my credit score is 780. Let me share with you what I’ve learned.

Money Life Lesson: Like a loan, credit cards have terms, characteristics, and considerations to think about before getting started.

Exclusionary Context: But once you master the process, you can collect cashback on your everyday purchases as well as rack up points you can spend on things like travel and hotels.

The Daily Deposit: Let’s rewind. 2018: I was applying for a credit card. I was denied everywhere because I didn’t have any sort of credit history. Because of this, I had to take out something called a secured credit card.

I went to my bank, gave them $300 in cash, then borrowed against that cash in the form of spending on my new credit card – meaning my card had a $300 limit on it.

Consideration #1: if this is your first credit card – you might have to open a secured credit card.

Consideration #2: once you have a credit card and you’re spending money on it – how much should you spend on it? Generally speaking, you never really want to spend more than 10-20% of your total credit limit. Since mine was $300 at the time, that meant keeping my credit card spend below $60 per month. I used it for my Netflix subscription.

Finally, consideration #3: “fees and interest.” – Being smart about spending means you can avoid paying them. In the fine print on a credit card application, there’s something called an interest rate disclosure. If you don’t pay off your credit card every month in full, you’ll be paying that interest rate on the remaining balance. That’s when debt can accumulate… quickly.

Debt can be avoided by paying off your credit card bill in full every month. Now, when it comes to annual fees – there are several solid cards out there by well-known companies offering great perks on spending with $0 annual fees. Don’t fall for the trap that you have to get a card with a big bad annual fee. And no – your card doesn’t need to be made out of metal.

Congrats, you now know more about credit cards than I did when I was 22. Use this knowledge to help you responsibly earn some cash back, rack up points for that next vacation, so you can ultimately build your credit score, which can unlock a world of financial possibilities.

A quick heads up: this video is sponsored by MoneyLion. All content is for informational purposes only and should not be construed as financial advice.

Video Summary

Credit cards provide many perks such as cashback, free points, and travel miles. These financial assets build up your credit score, a vital metric that can give you access to numerous opportunities. 

However, a credit card can feel intimidating for the first time and lead to debt. We’ll share some credit card considerations to help you build your credit smartly.

How to get a credit card with no credit

Most credit card companies will want to see trustworthy credit history before giving you a card. Your credit score helps companies determine if you can manage debt responsibly. This requirement puts most applicants in a Catch-22 since most people use credit cards to build credit. 

A secured credit card provides a viable alternative. You can put money into a secured credit card and use that amount as your credit limit. This credit card won’t have perks like cashback on everyday purchases or points. These cards help beginners with building credit. 

Understanding your credit utilization ratio

Your credit utilization ratio measures how close you get to your credit limit. It impacts your credit score and ability to incur future debt. If you have a $3,000 limit and you’re $300 in debt, then you have a 10% credit utilization ratio. A credit utilization ratio below 20% helps your credit score the most.

Credit cards with higher limits provide more leeway. However, a secured credit card gives you less wiggle room. Some of these cards have $300 credit limits. A few purchases can quickly inflate your credit utilization ratio into a dangerous territory. 

Stick with a single subscription for your secured credit card. One subscription keeps you within your ideal credit utilization ratio range and sets you up for a better card. Once you get a better credit card, you’ll get a higher credit limit. You can raise your credit limit or pay down debt to lower your ratio.

Navigating fees and credit card debt

Fees and debt scare away most people from taking out a credit card. However, these cards help people rack up rewards and build credit. Any cardholder can avoid interest payments by paying debt on time. 

Only spend as much as you can pay off within the next 30 days. Any late payments will carry into the next month. Interest will build up your principal and snowball unless you pay on time. 

A credit card’s interest rate disclosure reveals your card’s interest rate. Most credit card companies charge double-digit interest rates. Check your credit card statement each week to ensure you stay on top of debt.

Some aspiring credit card holders come across cards with annual fees. Avoiding these cards and opting for zero fee cards lowers your costs and still provides many perks. 

Responsibly earn cash back, get points, and build your credit score one payment at a time. A credit card can open new possibilities if you use it correctly.

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