Each week, we are sharing a financial wellness tip to help you make the connection between financial management decisions, your overall wellness, and student success. Money touches every aspect of our lives, and a lack of financial literacy can cause unnecessary stress and negatively impact one’s mental and physical health.
Credit Cards
A credit card is a card issued by a financial company that allows you to borrow funds. Many people use a credit card to cover some of their expenses, however you must understand how they work and how they should be used to help avoid falling into debt.
There are a variety of credit card types available, such as:
- Retail/Store Credit Cards: If you’ve ever made a purchase at a retail store like Gap or Target, you’ve probably been asked if you'd like to open a credit card when you're making a purchase. This kind of card can often only be used at a specific store or group of retailers.
- Secured Credit Cards: These cards require you to make a cash deposit to the card issuer. Your deposit serves as collateral and the source for your credit. These cards are ideal for individuals with little, no, or bad credit.
- Unsecured Credit Cards: These cards are the most common. Your credit rating, ability to pay, application, and other factors largely determine the credit limit and interest rate you qualify for.
With credit cards, it is commonly suggested to use less than 30% of your total credit limit. For example, if your credit limit on a card is $5,000, you should never have a balance of more than $1,500. It can be tempting to spend up to your limit, but remember that a credit card in NOT free money. Everything you spend is loaned to you with the expectation that you must pay it back, with interest.
When you receive your credit card bill each month, consider paying as much as you can rather than just paying the minimum amount due. Ideally, you should try to pay off the balance of your card each month, but consistently making at least the minimum payment is one of the largest factors that will positively impact your credit score.
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