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Credit Cards: A Guide to Using Your Plastic Responsibly

Credit is essentially a loan. In this way, home loans, auto loans, and student loans are all types of credit. One of the most common forms of credit used in the US, however, is the credit card. 

A credit card looks very much like the debit card you will receive when you open your checking account. However, whereas your debit card is linked to the money you already have in your checking account, a credit card is linked to a line of credit, an amount the issuing bank has agreed to loan you. You can use this card to pay anywhere credit cards are accepted — shops, grocery stores, restaurants, etc. 

Credit cards have monthly billing cycles. You will receive a bill at the end of each month stating how much you spent in that time frame and the minimum amount you must pay to keep your account in good standing. It’s very important you always make this minimum payment on time, or you will be hit with a late payment fee, and your credit score will suffer. Of course, you can and should pay the entire balance if possible. Otherwise, you will be stuck paying interest. 


Credit Card Interest

All lines of credit come with an interest rate - a fee for borrowing money from the financial institution. For credit cards, any amount that you don’t pay back at the end of the monthly billing cycle will incur an interest charge, varying from 0% to as high as 26% APR, or Annual Percentage Rate. To get your daily interest rate, divide your APR by 365.

At the end of each day, the card issuer will multiply your unpaid credit card balance by this daily interest rate, which they will add to the unpaid balance. What this means for you is that even if you don’t spend any more credit, if you don’t pay off your balance in full, the amount you owe will climb every single day. This is how a $100 credit card purchase can cost you $200 before you know it! Therefore, It’s recommended that you only use your credit card when you know you will be able to pay the balance in full at the end of the month. 


How to Apply for a Credit Card 

While you don’t need to be a US citizen to apply for a credit card, most companies will require either a Social Security number (SSN) or a tax identification number (TIN). You will also need to provide basic information such as your name, date of birth, citizenship, monthly income, and monthly rental or mortgage payments. You can apply for the majority of credit cards online by filling out a simple application, and you will often know whether your application has been approved in a matter of minutes. 

One potential difficulty for newcomers to the US is that it can be hard to get approved for a credit card if you have no credit history here. To get around this, look for companies like American Express and HSBC that will allow you to use your international credit history when applying. 


Choosing a Credit Card 

Credit cards can come with great perks such as a percentage cash back, rental car insurance, or air travel miles. They can also come with hefty annual fees, however, so be sure to check the fine print before applying! 

If you already have a bank account at a large national bank such as Wells Fargo or Bank of America, you might consider the same bank for your credit card, as these companies will often link your accounts to allow for easy payments. 


Popular Credit Card Companies:

  • Visa 
  • Master Card 
  • American Express 
  • CapitalOne 
  • Citibank
  • Chase 
  • Discover 
  • Bank of America
  • Wells Fargo 

A credit card can be an excellent tool to help you build your credit history in the US, but make sure you stay on top of your payments! Remember not to spend more than you can afford to pay back each month or you will get stuck paying a lot of interest.