Credit Cards
A credit card lets you buy things without using cash or money from your bank account. They can help you earn rewards, and strengthen your financial reputation, also called your credit score. Credit cards come with responsibilities like spending only what you can repay, making payments on time, and paying enough to lower your balance. These habits can help you avoid debt, reduce extra fees, and keep your credit score strong.
How credit cards work
A credit card allows you to borrow money from a company, bank, or credit union to make a purchase.
This is different from a debit card, which pulls money straight from money you already have in your bank account. A credit card gives you a borrowing limit, called a credit line, that you must pay back later.
Each month, the company that gave you the card mails or emails a statement.
This bill lists what you bought and shows the total amount you owe. If you choose not to pay the entire balance, the company adds extra charges called interest to the amount you still owe.
The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 protects people who use credit cards by requiring credit card companies to clearly explain all costs and rules.
It also stops companies from sharply increasing the interest rate on money you already borrowed.
How to get a credit card
Banks and credit unions sometimes offer a credit card when you open a checking account. Otherwise, you need to apply for a card directly with the company or bank.
To qualify for a credit card, you usually need:
- Credit History: This is a record of how you handled loans or bills in the past. Companies use this record to decide if they will approve you and how much you can borrow. A higher credit score often brings better terms, lower interest charges, and a higher spending limit. You can see your credit report for free once a year at AnnualCreditReport.com or by calling (877) 322-8228.
- Income: Lenders look at the money you earn to decide if you can afford to repay what you might borrow. Federal rules under the CARD Act protect people under age 21 by requiring proof of income or a co-signer – someone who promises to pay if you cannot.
If you have little credit history or past problems with debt, you may qualify for a secured card.
This type of card requires you to give the bank a cash deposit before you use the card. The bank holds the money as a guarantee. The deposit usually matches your spending limit. Using a secured card responsibly over time can help you build or rebuild your credit record.
How to use your credit cards responsibly
Paying bills on time
Making payments on time is one of the best ways to keep a strong credit score. When you pay by the due date, you avoid late fees, prevent higher interest charges, and protect your credit history. You have the right to dispute inaccuracies in your credit report. This can help you protect your credit history from damage due to errors.
Paying more than the minimum
Your monthly credit card statement shows a “minimum payment”. This is the smallest amount you can pay. If you only pay that amount, the rest of your balance will collect interest. These extra charges can grow quickly and make it hard to pay off the amount you owe. Most credit cards have high interest rates – sometimes more than 15%. When you pay more than the minimum, you lower your balance faster and reduce the amount of interest you pay over time.
Managing your credit use
Credit utilization is the share of your available borrowing limit that you are using. This amount affects your credit score. A good rule is to use less than 30% of your limit. For example, if your credit card has a $1,000 limit, try to keep your unpaid balance under $300. Lower unpaid balances show banks and lenders that you manage your credit well.
Fees, interest, and penalties
Credit card companies charge a variety of fees, including:
Some credit cards charge a yearly fee for using the account. Many credit cards have no yearly fee, especially if your credit history is strong.
Protections for credit card users
Federal and Arizona laws protect you when you use a credit card.
The FCBA protects you from unfair billing. It also limits your responsibility for unauthorized charges to $50 if you follow certain rules. You must report the billing mistake in writing within 60 days of receiving the billing statement that shows an error. The company must look into your claim and resolve it within two billing cycles, but not more than 90 days.
TILA requires lenders to give you clear information about the costs of borrowing. This includes interest rates, fees, and other important terms. These rules help you compare credit card offers before you apply. TILA covers many types of credit, including credit cards and home loans.
Arizona law protects people from dishonest or misleading business practices. It applies to problems like unfair lending, false advertising, and improper charges on credit card accounts. The Arizona Attorney General’s Office investigates complaints and can help consumers who report issues.