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Posted in Credit Cards
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Question By
nikkifitzgerald

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3 People Helped
How exactly do credit cards work? I'm 19 and have a job, I need to build my credit!
I want to start buliding my credit, and apply for a credit card but I want to better understand exaclty what it does and if it will really benifit me right now. Im understanding it as whatever you use off the card you have to pay back..? Help please, I'm new to this :)

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You ask good questions! They're questions that are a little hard to answer in a little Q&A section like this. But I'll try to give it a good start.

When you get a credit card, you're given a total amount you can spend. This is your credit line. On a first card, the credit line may be as little as $500.

Although you now have a $500 loan at your disposal, to be spent anywhere your type of credit card is accepted, you should not spend it all. To build good credit, you should never have more than a 30% utilization rate on the day your card vendor issues your statement. So once a month, on statement day, you want to be sure to have a low (but not zero) balance on the card.

With credit cards, you can pay the entire balance off if you want to. But you can also pay a bit at a time. The card will have a minimum payment due ($25 a month is a typical figure on a low credit-limit card). You can pay that -- although it's always a good idea to pay more.

Your first card may have a horrible interest rate. But over time, as you manage credit well and apply for new cards, you'll qualify for both better interest and bigger credit lines.

Your very first card will probably be a secured card -- that is, one that you have to pay up front for. If you want a $500 credit line, you'll have to deposit some large amount, up to $500, to get it. This may seem pointless. But it the way people get started building credit. And it does help you learn how cards work.

After you've managed a secured card well for six months to a year, then you can apply for an unsecured card or some other form of credit ... and you're on your way.

Hope that helps.

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