Credit cards allow you to borrow finances from your issuer. That can be your bank, credit union, or other financial technology company. The cards resemble debit cards in their appearance, but their operation is a bit different. They can be metallic or plastic, depending on the issuer’s preferences. Also, you can have a virtual credit card whereby you use the card’s details to make payments online. But how many credit cards should I have?
We shall be checking if you can have more than one credit card shortly. Every credit card applicant should be at least 18 years old as per the requirements. That means they can use their cards wisely. Someone below 18 years cannot make informed decisions regarding money transfers. They may borrow excessively so they cannot repay their loans, and maybe they may default on their payments, destroying their credit at an early age. After all, where do people under 18 years old get a credit card, yet they do not work?
There are various ways you can use a credit card. They include buying goods and services, withdrawing money at an ATM, and paying for goods and services. However, withdrawing money at an ATM is not recommended since it costs a lot of fees. That is called cash advance and is usually expensive. You can also get a credit card to build your FICO scores if you have bad scores or have no scores at all.
How do credit cards work?
The cards operate in a simple manner. Once you get the cards, you can borrow money from your issuer to purchase goods and services and any other transaction activity. After getting the card, the issuer usually gives you a borrowing limit. That is the maximum amount of money you can use with your card. You must repay the used amount and then borrow again when you hit the limit.
The credit limit is usually different from one person to another. It all depends on the creditworthiness of an individual, which is determined by an individual’s scores. Also, your borrowing limit can be determined by the deposit amount you make when getting a secured credit card.
Once you spend your limit, you will need to repay the spent amount to borrow again. Most issuers require you to repay your debt every month. You must understand that you should pay your credit card borrowing with an interest rate. That is a small amount of money you have to spend on top of the borrowed amount. In short, the interest you pay is the profit of the financial company that gives you the card.
Your issuer reports the card usage to the credit bureaus as you use your card. These are bodies entrusted by the federal government to collect and keep information for borrowers. They then use the various pieces of information to calculate FICO scores and compile your credit report. Your scores will be available for checking by any other lender when you request a loan or line of credit.
How to apply for a credit card?
You can apply for your credit card online or at a branch. However, the online application for a credit card is the best as it allows you to apply right from your couch or when traveling somewhere. You only need to provide the address of where you live and get the card once it is ready.
However, you must check on various factors to ensure that you get the best card ever before getting your card. You should have a checking account before applying for a credit card in most cases. Remember that you can apply for an unsecured credit card that requires scores or the secured one that requires a security deposit. Usually, one should apply for a secured credit card for rebuilding credit. You can grow your scores from scratch or a bad credit perspective.
Before getting it, you should first deposit your security funds in the card account for the secured credit card. Once you get it in your place, you should activate the card to start using it.
What factors should one check before applying for a credit card?
You do not just wake up and apply for a new credit card, as there are things you should check to ensure that you get the right card for your case. The following are the things you should check.
i) Credit limit
A credit limit is the maximum amount of finances you can borrow from an issuer. Every issuer has various borrowing limits for specific FICO scores. Therefore, you should check various financial companies’ credit cards based on scores.
ii) Interest rates
The interest rate refers to the extra money you pay on the borrowed amount. It is the profit of the card issuers. Since the rates are not uniform with all card issuers, you should ensure that you get a card with low-interest rates. That allows you to save substantial amounts of money.
iii) Fees
The cards usually have various fees that you should know before getting any credit card. These include foreign transaction fees, late payment fees, monthly fees, annual fees, and cash advance fees. Getting a card with lower fees ensures that you save a lot of money that could have gone to the fees.
iv) Rewards
Some card issuers allow you to get cashback on a credit card when you use it to shop at certain outlets. These can be filling stations, supermarkets, restaurants, and so on. Other rewards include miles and points that you can redeem for money to buy goods or services.
How many credit cards should I have?
There is no specific number of credit cards that you should have at a given time. Therefore, you should have as many cards as possible as long as you can pay your debts appropriately. And by the way, many credit cards are advantageous because you can grow your scores within a given time.
Many issuers report to the credit bureaus when you have many credit cards. Therefore, you are likely to grow your scores fast, especially when you aim to grow FICO scores. Financial companies see you as a responsible borrower if you can manage to repay your debt for all those credit cards. You should make sure that you do not use too much of your credit. Never use more than 30% of your borrowing limit to avoid affecting your scores negatively.
What are the two types of credit cards?
Usually, we have two types of credit cards which include secured and unsecured ones. I had touched a little bit on each of the cards, but there is a need to discuss them in detail. Let us look at each of the cards.
a) Secured credit cards
As I mentioned earlier, secured cards are the ones that allow you to deposit money in your account as security. If you cannot repay your debt, your issuer can get the deposited amount to repay your debt. When you deposit the funds, the card issuer locks them so that you cannot spend them.
Usually, you can apply for a secured card to build scores. You can then qualify for an unsecured credit card when you attain specific scores. Your deposit becomes available for use in your account. Secured cards charge low-interest rates since there is a low risk associated with your account.
b) Unsecured credit cards
Unsecured cards require FICO scores when applying for them. Various cards suit different scores, and you can get your card as per your scores. The more your scores, the more you can qualify for better cards and vice versa. Scores express your ability to repay a certain amount of loan. Even personal loan issuers require you to have a certain number of scores to qualify for various amounts of loans.
FICO scores range from 300 to 850, whereby if you have 300, you have the poorest scores ever. 850 represents excellent FICO scores whereby, with such scores, you can get credit cards and loans with high limits and low-interest rates.
Can you get a credit card to build scores with no deposit?
A secured credit card is effective for building scores. However, it requires some deposit. You can get an instant credit card approval for bad credit with no deposit if you apply for an unsecured credit card for bad scores. Such cards have low limits and high-interest rates but can help you grow your scores if you use them well. The good thing with such cards is that you do not need any money to get them, unlike the secured ones.
To effectively grow your scores using a credit card, you should make timely payments, avoid using your card for cash advances, and spend 30% of your credit limit at most.
Bottom line
Credit cards allow you to borrow finances from your issuer. You can get a credit card from your relevant issuer online or at a physical branch. It depends on your preferences and how your issuer does it. You can have a secured or an unsecured credit card. Unsecured credit cards require your scores when applying. A secured credit card is excellent for building scores from scratch or a bad credit point.
