Top Credit Habits to Adopt in Your 20s: Be Selective About Credit Card Choices
Credit cards can be a convenient way to spend, as well as a powerful tool for building a credit history in your 20s. In fact, approximately 33% of 18- to 29-year-olds have at least one credit card, according to Bankrate. If you’ve been following this credit habits series so far, you’ve learned how to organize your financial life, how to build a budget and what a credit report involves. Next up, we dive into everything you need to know about making good credit card choices.
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Why Credit Card Choices Matter
Credit cards aren’t created equally, and what works for one 20-something may not be right for another. Comparing credit card options carefully is important for a few reasons.
First, there’s the cost. Picking a card without considering the annual percentage rate (APR) or the fees can be an expensive mistake, especially if you carry a balance versus paying in full each month. The higher your APR, the more you’re going to pay in interest on purchases. Paying an annual fee can also remove some of the value of any rewards you may be earning.
Speaking of rewards, there’s another reason to think twice about the credit card you choose. Perhaps you like to travel, for instance. A rewards card that offers miles or points that can be redeemed for flights or other travel purchases might make more sense than a card that gives you cash back.
Lastly, and perhaps most importantly, there’s the impact to your credit score. When you apply for new credit and a lender pulls your credit report, that creates a hard inquiry. These inquiries show up on your credit report and this could impact your credit score. If you’re applying for credit cards left and right, you’re adding multiple hard inquiries on your credit report.
How to Choose a Credit Card
Whether you’re applying for your first credit card or your tenth, there are a few important things to keep in mind. When it comes down to credit card choices, it’s all about doing your homework.
1. Decide What Type of Card You Need
The first thing to think about when contemplating a new credit card is what you plan to use the card for. Credit cards are designed in a variety of ways and for many different lifestyles — it’s important to think about how it will complement yours. Knowing what your goal is in opening a new credit account can help you narrow down the field of options.
2. Consider the Cost
Next, take a closer look at the APR. Make sure you understand what the APR is for purchases and whether there’s a different APR for balance transfers or cash advances. Then, check out the fees. That includes the annual fee and also fees for balance transfers, cash advances and late payments. If you’re eyeing a card for travel, check to see if a foreign transaction fee applies to purchases made outside the U.S.
3. Evaluate the Rewards Structure
If you’re considering a rewards card, be clear about the type of rewards the card offers and how rewards are earned and later used. The goal here is to pick a card that offers the kind of rewards that best fit your spending style. It’s also a good idea to consider how those rewards can be redeemed to make sure that they’re going to be useful.
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4. Check for Features and Benefits
One last tip for making good credit card choices: See if the card offers the ability to check your credit score, along with other helpful tools such as spending analyzers. A number of card issuers offer free credit scores and financial tools that you can use to stay on top of your credit.