A credit card is a financial tool that allows you borrow a small amount of money and pay the loan quickly. It also helps you build good credit history that banks will consider if you apply for other loans in the future. If you pay your credit card balance within a month, there is no fee. If you don’t pay your full credit card balance, you will have to pay interest on the amount you did not repay. The interest charge on balances not paid after a month is very high and can add to what you owe very quickly. If you don’t pay the required minimum amount on the due date there will be also be a penalty fee. Therefore, a credit card should only be used to pay for goods and services that can be paid back within a month. Though they look similar, a credit card is different from a debit card. A debit card immediately withdraws money out of your bank account when you pay for something.
How Can I Get a Credit Card?
When issuing credit cards, banks look carefully at applications. They want to make sure the money they lend through the card will be paid back. The bank will ask another company called a credit bureau to look at the applicant’s borrowing history to see if they currently owe money on other loans and if they have a history of paying back loans and bills on time. Using this information, the credit bureau will calculate a credit score for the individual. The bank will only issue a credit card if an applicant’s credit score meets their standards. A credit score will be linked to a social security number and most credit card companies will ask for a social security number in the application. So, if your goal is to build a credit history, it is especially important to have—or apply for—a social security number when you apply for a credit card.
What if I Don’t Have Any Credit History?
There is a way to get a credit card if you don’t have a credit history or credit score. If you put down a cash deposit, some banks will issue you a “starter” credit card. You cannot spend more with the card than your deposit, but if you pay your bill on time each month, you may be upgraded later to a standard card that does not require a deposit. You will also be building a credit history by paying the amount on your credit card each month.