Wheel of Hypothetical Fortune
If you’ve just entered higher education, secured your first job, or moved out on your own for the first time, there’s a chance you’re looking at applying for your first credit card. The word “credit” seems nearly ubiquitous across all channels of life – from grocery stores to housing leases, credit and credit cards are painted as the essential mechanism between consumers and the market.
Deciphering credit is instrumental in your ability to manage your financial health. While horror stories circulate on credit mismanagement and insurmountable debt, credit doesn’t have to be a scary thing. Before applying for a credit card, it’s important to know what you’re getting into. Think of credit like a gameshow: there’s one objective, many candidates, and a scoring system to see how you match up among other credit users. Engaging with credit can be your ticket to success, but a wrong move can land you in a state of misfortune.
What is credit, and what’s the point? Credit cards differ from other financial products in that there is time between the physical purchase of an item to the withdrawal of money from your account. It can seem like instant gratification – see, swipe, score. All the material world is at your fingertips with the touch of a piece of plastic. But this isn’t the case! Credit cards are accessible and convenient to use, but there are expectations and responsibilities that accompany the tool. When you use a credit card, you’re borrowing money you don’t have. The objective then becomes paying off your purchases at the deadline set by your lender.
Credit cards aren’t all the same – there are different options for the type of card you apply for, even within the same bank. Some companies will advertise rewards and benefits to incentivize signing with them. Two common features include cash-back rewards, which give a small percentage of cash-back on every purchase made, or points, which can be redeemed for rewards programs such as Air Miles. Interest, annual fees, and transaction fees should also be taken into consideration when selecting a card. There are several online tools you can use to compare options – choose the match that’s right for you!
Winners… and Losers
Now that you know the rules and tools of the game, how do you get your results? Every purchase you make is contributing to your credit score, which is a number derived from various factors that signal your dependability as a consumer. Variables such as your payment record, amount owed, and longevity of your credit history are all components of your score. Credit scores ranges on a scale of 300 at the low end to 850 at the high end, with the number indicating the odds that your lender will be repaid the money they lend you. Play the game right, and you’ll earn yourself a good score – there’s no way to achieve or reverse a number, apart from your own actions.
Think of your credit as a game, not a gamble. The intangibility of credit can tempt overspending, thus following the rules and understanding the objective of credit differentiates the winners from losers of the game. Keep in mind that when you decide it’s time to get a credit card, knowing what it is and what it can do will only get you so far. It’s how you play the game that counts.