Getting Started In Credit Cards: A Primer
Hey, welcome to this little corner of the internet. If you are new to credit cards, or you want to make sure you've got a great knowledge base and didn't miss any basics, you've found the right place to be.
Paying in Full and On Time
The most important thing to do when using a credit card is to make sure you only spend as much as you can afford to pay off immediately. Specifically, you should put every card you have on auto pay for full statement balance. There are cases where this isn't ideal, but they should be rare and when you get started, you shouldn't worry about them.
If you don't do this, you are losing all the value you might get from rewards and much more.
Billing Cycles 101
There are two dates in time every month that matter when it comes to credit cards. Those dates are:
Statement Close Date:
This is the date when the card issuer will total up all charges and payments since your last statement close date and determine what you owe that month.
Payment Due Date:
This date is usually roughly 20 days after your Statement Close Date and is the day of the month when your payment is due for the previous (month) billing cycle's charges. Making your payment for your statement balance any time between your statement date and your payment due date will mean you won't pay interest, and that is what we depend on in this game.
Building Credit Basics
When getting started in credit cards, one of your goals is inevitably building your credit up.The biggest things that affects your credit score are on time payments like we mentioned above, and amounts owed. For credit cards this is also referred to as utilization. Ideally you won't use more than 10% of your total credit limit, but between 10% and 30% won't hurt your score much.
Utilization is one of the factors in your credit score that you have the most control over. As you get more available credit, you will naturally have a lower utilization while spending the same amount of money. Until then though, there is one thing you can do. We talked about the Statement Close Date in the previous section. If you make a payment on your card to cover all but a small amount of your charges for the month right before your statement close date, you can control your utilization number. A utilization of 1-5% should give you the best possible score you can have each month.
To make it easier to manage, you can request that your card issuers change the Statement Close Date for each of your cards to make them the same date if you want to. There are more factors to how your score is calculated beyond those two. To see more on how your FICO score is calculated here.
Sign Up Bonuses vs Earning Categories
When it comes to earning value from credit cards, there are two components to earning.
The one everyone thinks of is how much you earn when you spend on a card in the long run. Like how the Chase Freedom Unlimited earns 1.5% back on all purchases.
However, the way most people get the best value from credit cards are actually from Sign Up Bonuses. If we consider the Chase Freedom Unlimited mentioned above, the current sign up bonus for that is $200 for spending $500 in the first 3 months and 5% back on grocery for the first year. Even the just the $200 component would require you to spend $13,000 on the card.
Clearly the ongoing value of a card can be important, and is especially important in your first cards, but the value that most people get from sign up bonuses vastly outstrip the ongoing value from existing cards. This means that when you get a card, you generally want to make sure it has a good sign up bonus.
Credit card issuers all have their own rules, and you don't have to know them all. However, something that will come up if you keep diving into the credit card game is 5/24. What is 5/24? 5/24 is Chase's rule where: if in the last 24 months you've gotten 5 personal credit cards, Chase will automatically deny you for any cards they issue.
So why cover this? If you get cards faster than once every 6 months, you will lock yourself out of getting additional cards with Chase. That means that before you accelerate your rate of card getting, you'll want to plan out what Chase cards you want. As you're just getting started, don't worry too much about it, but think about it as you start making longer term plans for what cards you want to get.tt
Annual Fees and Downgrade Optionality
As you are getting started in credit cards, you're generally going to want to stick with cards that don't have an annual fee. But eventually, you might want to start getting cards with annual fees. Something you will want to consider is what happens if you get that card with an annual fee and then you decide it no longer fits. Some cards will have the option to product change the card to a version with no annual fee, others you would have to cancel the card to avoid paying the fee every year.
When you are building up your credit profile, you probably want to stick with cards you can keep forever. Either stick to cards with no annual fees or pick cards that can be changed to cards with no annual fee later.
Store Cards and Why you usually don't want them.
There is a small class of cards that are restricted to use only at a specific store. There are store cards and store branded credit cards. The former is only usable at a specific store. The latter is a general purpose credit card that will usually get much greater value at the specific store. Generally there is no upside to having the store card when a branded credit card is available. Additionally, make sure you are critically evaluating the store credit cards against the general purpose credit card offerings for your use cases as well.
5 Rs of Applying for a new Card
Good job, you made it to the best part, applying. Let's say you've decided what card you want to get next and it is finally time. What do you do now?
-Referrals First of all, if there is a referral program, you should try to find a referral link so you can help someone else out too with your card application. You should always make sure you are getting the best possible offer for yourself*, but if you can get that offer via a referral link, use one. I generally suggest supporting friends and family first, and then either content creators like this blog for instance or members of the credit card community if you've interacted positively with any that have the relevant link. *Make sure to open the public page in an incognito window in addition to referral links to check for all possible offers.
-Reconsideration
Now you've applied. Hopefully you were instantly approved, but if you apply enough, you'll eventually be rejected. Don't fret though, most issuers have a reconsideration line. That means that after you receive an automated rejection, you can call up the card issuer and see if you can convince them to give you the card anyway. There are tons of guides online that can help you prepare to call reconsideration and I suggest reading some of them to prepare, but if you need the shortest guide ever, here you go.
Talk about how excited you are about using the benefits of the card.
If the issue is you have too much credit with the issuer, offer to move some around.
Don't talk about how you want the sign up bonus.
-Re-Evaluate
Hopefully at this point, you've been approved. But if it didn't work, it's ok. Your call to reconsideration, or your letter you got in the mail if the issuer doesn't have a reconsideration line, should tell you a little about why you weren't approved. You can use that information to decide if you should wait to apply a little later, or if you should change up your plans and apply for a different card for now.
-Rest
Now that you've gotten a card, or perhaps your rejection indicated that maybe you should take a break and slow down, you should take a short break. Focus on earning your sign up bonus. Between cards, you should take your time. To start with you'll want to take more time between applications, as your credit profile becomes more robust, you can speed up your applications.
-Retry
If you were denied and still want the card, don't worry. Use the information your rejection gave you and plan when you should try again. There may be issuers who just don't like your credit profile but most of the time you can get a card if you adapt to the reason for rejection.
Wrapping Up
I hope this has helped you get a good grasp of what you need to know to succeed in the credit card game. Whether you are just dabbling or you end up joining us in the deep end of the credit card game, these should all be valuable pieces of information for you.
If you'd like to find me more places, or you want to use my referral links for a card, feel free to check my links out here!