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Using Plastic: A Young Adult's
Guide to Credit Cards

Some of your friends may have credit cards already. At first glance, a credit card gives you freedom to buy something on the spur of the moment—without worrying if you have enough cash in your pocket. It makes shopping look incredibly easy: just one payment at the end of the month.

Some of your friends may have credit cards already. But if you talk to friends or adults about using credit cards, you may find that there are drawbacks. Some credit card users find they've spent too much money on too many things. Some can't pay their bills on time. And, those who have trouble paying back their debts may find they can't borrow money when they want to make a really important purchase—like a car or a house.

The key to using a credit card wisely is knowing how to use it responsibly. We hope this article helps you do that by highlighting the important things all credit card users should know.

I want to get my first credit card.
How do I do it?

You may be able to get your first credit card with your name on it through your parents. By having your parents co-sign for the card, you use your parents' income and good repayment history to qualify. You then can make purchases with the credit card, and you or your parents can pay the bills.

If you have a job or other income, you may be able to get a credit card on your own. This is important because if you want to use credit regularly—and someday apply for even more credit—you will need to establish your own "credit history."

This credit history (prepared as a "credit report" by a credit bureau) is a description of how responsibly you handle credit—for example, whether you pay bills on time. Financial institutions usually check your credit report before lending you money or issuing you a credit card. To establish your credit history:

  • Apply for a credit card at a local store or a small loan at a local lending institution. Ask the creditor if the store or lending institution reports credit histories to a credit bureau. If they do and you pay back your debts regularly, you will compile a good credit history.

  • Ask the creditor for specific reasons if you are ever turned down for credit. For example, your current salary might not be high enough or you may not have worked at your current job long enough. Time may resolve these matters. Reapply for credit when your situation changes.

  • Ask someone with an established credit history (such as a relative) to act as your co-signer if you cannot get credit on your own. The co-signer must promise to pay your debts if you don't. If you use a co-signer, repay your debt promptly and try again to get credit on your own.

There are so many credit cards.
Which one should I apply for?

If you are choosing a credit card, think about how you will use it. You may want to compare the following cost features to see which card will best suit your financial needs.

  • Annual percentage rate (APR): The APR measures the cost of credit on an annual basis and may be the easiest way to compare costs among credit cards. Usually, the lower the APR, the less you'll be charged for credit. The APR includes the interest rate and other costs, such as service charges or loan fees. If you expect to pay back less than the full amount you charge each month, you'll have to pay finance charges on the unpaid balance. In this case, choose a card with a low APR.

  • Annual fees: Many companies charge an annual fee, no matter how much or little you use their credit card. But if you intend to pay your credit card bills in full each month, you may not have to pay monthly finance charges. In this case, a card with a low annual fee may be more important to you than one with a low APR.

  • Grace periods: This "free" period allows you to avoid any finance charges by paying your bill before the due date shown on your statement. Some cards have grace periods from 21 to 30 days. Some have no grace periods and impose finance charges from the day you use the card. Cards with longer grace periods may save you money, but only if you pay all of your charges each month.

  • Other charges: In addition to comparing the terms noted above, check several credit card offers to see if you will be charged a fee for things such as paying your bill late or charging more than your credit limit. These extra fees, which may be charged in addition to interest, add to the cost of using your credit card.

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