Starting a New Line of Credit

1. What is a credit card and how is it different from a debit card?

A credit card allows you to borrow money from a credit card company, with the agreement you will pay a percentage of interest on any outstanding debt at the end of each billing cycle. A debit card pulls money directly from an associated bank account. Responsible credit card use helps build your credit score while debit card use does not establish a credit history.

2. What do I need to apply for a credit card?

Applying for a credit card is a simple, straightforward process that requires only some basic information. Students will need the name and location of their school in addition to a social security number and primary address. For security purposes, you also should know your mother’s maiden name.

3. How do I get a credit card if I have no credit history?

There are plenty of options on the market for people with limited credit history. Shop around to find the card with the lowest APR and fees you can qualify for. If you are having trouble being approved for cards with reasonable rates, consider a credit card that requires a security deposit or ask a parent to add you as an authorized user on his or her card.

4. How many credit cards should I have in order to build credit?

There is no “right” number of credit accounts to build a good credit score. According to Experian, there are many factors that make up a credit score (and every reporting agency has its own formula), but late or missed payments, frequency of credit inquiries, and your credit utilization ratio are all major factors.1 When you’re starting out with credit, it is safe to begin with one or two cards to ensure you can make payments consistently before adding more.

A more advanced move is to optimize your credit utilization ratio, possibly by adding cards or requesting higher limits. Your utilization ratio is the amount of total debt you’re carrying compared to your total credit limits. If you can responsibly manage multiple lines of credit, you can lower your utilization ratio even if you are carrying a balance on one or two cards.

5. What are instant approval credit cards?

Instant approval means you’ll receive a quick answer to your application for a new credit card. This is typically a “conditional approval” based on a preliminary credit check run by the credit card company. Typically, only people with good to excellent credit scores are granted instant approval. It is possible to be conditionally approved and then denied later when a more in-depth credit check is done. Learn more about instant approval credit card offers.

6. What does it mean to be “pre-approved” for a credit card?

Receiving a pre-approved credit card offer means that a credit company has seen your credit history and approved you as a quality candidate for their product. You’ll still need to apply in order to actually receive a new credit card, at which point you may still be accepted or denied.

7. How old do you have to be to get a credit card?

18 is the minimum age to apply independently for a credit card in the United States. However, people under 18 can be added as authorized users to their parent’s accounts.

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Credit Use

8. Why does your APR go up if you’re making payments on time?

There are a few reasons your APR can go up even if you’re up to date on all payments. These include a drop in your credit score, the end of a card-related promotion, or a change in the prime rate if you have a variable-rate card.

9. What tools are available to help manage my account?

Online account management at Discover.com allows you to quickly and securely view transactions and make bill payments. You can also stay up to date on your account through custom e-mail and mobile reminders. Text APP to DISCOV (347268) to download the Discover Mobile App, and receive all of the convenience and security of online account management, including fraud alerts, the Spend Analyzer, and Paydown Planner to keep you informed and in control.

10. What are a few ways to avoid credit card fees once you have a credit card?

One simple rule: pay your bill on time. Late fees ding your pocketbook, and late or missed payments have a negative effect on your credit score.1

Also pay attention to all mail from your credit card company. While your card may not have had an annual fee when you signed up, you may receive communication that the policy has changed. You can choose to cancel the card to avoid the fee, but only if you know it’s coming.

11. If you are shopping online, why is it a good idea to pay by credit card instead of debit?

Advantages to online shopping with a credit card over a debit card include more fraud and purchase protection along with additional warranties and rewards. Not all cards are created equal, but many of the top credit cards offer benefits such as purchase protection, extended warranties, return guarantees, and rewards programs.

The most significant difference has to do with fraud. If someone makes fraudulent charges with your debit card, the money comes directly out of your bank account. Even if you are able to get a refund, it can take weeks or months to get that money back. With a credit card, you can refute the charges and the funds never leave your account.

12. How do I lower interest rates on credit cards?

It never hurts to call your credit card company and ask for a lower interest rate. Depending on your current standing and credit history, a customer service representative may be able to approve a lower rate. Also consider a balance transfer.

Credit Card Rewards

13. What is cash back?

Cash back is when the credit card company gives you a certain percentage of what you put on the card back in the form of (electronic) cash. Different programs offer different redemption options, but typically cash back is one of the most flexible types of credit card rewards. You can use it as a credit toward future purchases, to online shop, to purchase gift cards, or simply have it deposited back into a connected bank account. Discover also allows card members to donate their cash back to a wide selection of non-profit organizations.

14. What is a statement credit?

A statement credit is a positive amount on your credit card bill. If you accidentally overpay, most credit cards will apply a statement credit toward your future purchases. As mentioned above, some rewards programs also allow you to apply cash back to a statement credit, essentially pre-paying for purchases on the card.

15. When should I redeem rewards on a credit card?

Some programs have no expiration dates and you can earn and use rewards whenever it’s convenient for you. Others have annual programs with “use it or lose it” clauses requiring that you redeem rewards within a certain time period or else forfeit their value. Be sure to read your Card Holder Agreement to understand if and when rewards expire. Cash back from Discover never expires.

Looking for more answers? Browse our Resource Center by topic to learn more about everything credit, from applying for a new card to making the most of your buying power.

Resources:

1. Experian “Improve Your Credit Score”

http://www.experian.com/credit-education/improve-credit-score.html

Legal Disclaimer: This site is for educational purposes and is not a substitute for professional advice. The material on this site is not intended to provide legal, investment, or financial advice and does not indicate the availability of any Discover product or service. It does not guarantee that Discover offers or endorses a product or service. For specific advice about your unique circumstances, you may wish to consult a qualified professional.

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