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A credit card is an excellent way to build credit , learn healthy credit habits, and be able to make purchases in an emergency. Our Credit Card Guide will walk you through the steps of applying for a credit card, using a credit card wisely, and creating responsible spending habits that will help improve your credit score.

Types of Credit Cards

Secured Credit Cards

What Are They?

Secured credit cards are tied to some type of collateral, such as a bank account or a security deposit, and the card’s credit limit cannot exceed that of the collateral i.e. if tied to a bank account, only the amount of money in the account.

The Pros

  • A good “trainer” card to help build up credit

  • Teaches responsible credit habits

  • Available to consumers with bad or no credit

The Cons

  • Low credit limits

  • May have annual fees and high interest rates

Unsecured Credit Cards


What Are They?

In general, when people talk about credit cards, they are talking about unsecured credit cards. When you apply for an unsecured credit card, you do not have to put down any kind of collateral or deposit to prove you can pay back any of the credit you use.

The Pros

The Cons

Rewards Cards

What Are They?

Rewards cards are secured credit cards that allow users to earn bonuses for making purchases on their cards. These are also called incentive programs, as they offer the prospect of earning bonuses as an incentive for using the card and using it often. Users earn rewards points, or rewards dollar values, based on number of transactions and/or the real dollar value of those transactions, depending on the terms and conditions of the card.

Rewards cards are ideal for people who make a majority of purchases on their credit card, but are in the 56% of Americans who pay off that balance every month.

Types of rewards cards, or the types of bonuses users can earn, include:

  • Cash back
  • Airline/frequent flier miles – can be generic, used at any airline, or brand-specific if the user flies more often with a certain airline
  • Gas – general or brand-specific
  • Hotel or travel – can be generic or co-branded with a specific chain
  • Retail – these cards are often co-branded with a major retail and earn points to be redeemed at that specific retailer

The Pros

  • Earn cash or points toward other expenses or luxuries, just by making everyday purchases
  • Typically for people with good or established credit, so high credit limits

The Cons

  • As an unsecured credit card, carries the same cons, so be sure to read the fine print [link].
  • In particular, may have high annual fees or interest that may cancel out the benefits of earning rewards.
  • Some rewards may be difficult to redeem or have complicated policies, such as blackout dates (dates where rewards cannot be redeemed). Again, be sure to read the fine print.

Specialty Credit Cards


Student Credit Cards

  • Many major credit card issuers also offer student credit cards geared specifically for college students with little or no credit.
  • Some may offer rewards bonuses for typical college purchases, such as books or meals out.
  • These cards will typically have no annual fee.
  • They may have also late payment forgiveness, or, you won’t be charged a late fee for a certain number of late payments.
  • Student credit cards may have higher credit limits, especially if co-signed by a parent or guardian. That way, the student will not damage his or her credit score by using a high percentage of available credit.

Business Credit Cards

  •  Business credit cards are unsecured credit cards specifically for small businesses and their employees
  • Can have multiple employee cards under one account
  • May have cash back or other benefits for businesses
  • To learn more about business credit cards, see our Guide to Small Business Ownership.

Best Options for Different Stages of Life

Teens and High Schoolers

For teens just starting out with their first credit card, it is important to build responsible spending habits while under a parent’s watchful eye.

Due to the passage of the CARD Act of 2009, designed to help protect young Americans from getting in overwhelming debt, it is more difficult for people under the age of 21 to acquire credit cards – they will either need proof of income, demonstrating they have the means to pay off any debt incurred, or will need a co-signer over 21, such as a parent.

However, having a co-signer can be beneficial because it can mean lower interest rates and a higher credit limit.

  • Secured Credit Card: With a secured credit card, a teen cannot spend more than the collateral tied to the card, such as the money in a savings account designated for that card. Secured credit cards may be seen by the issuer, such as a bank, as a “training” card, and after 1-2 years of responsible credit management, the issuer may make the card unsecured.
  • Prepaid Credit Card: A prepaid credit card isn’t really a credit card at all – it’s more like a debit card in that it withdraws money from an account. For young teens, a prepaid credit card may be a good first card to help teach responsible spending habits, how to read a statement, and how to budget successfully.
  • Unsecured Credit Card: In almost all cases, a teen will need a parent or guardian to co-sign for an unsecured credit card. Set a small credit limit for the card, and emphasize the importance of paying the bill on time and in full (as in, don’t leave a balance to accrue interest) each month.

College Students

College students under the age of 21 will face many of the same obstacles as teenagers to getting a credit card, and the same strategies with teens will be useful for college students as well. Secured credit cards, prepaid credit cards, and unsecured credit cards with a parent co-sign are also good options for college students. Additionally, college students have options catered specifically for them .


  • Visit the College Credit Card Agreements Database to find up-to-date information on card issuers who have marketing agreements with universities, colleges, and affiliate organizations including fraternities and sororities.

Young Professionals

For recent college grads and young professionals in their 20s with little to no credit history, it can be difficult to find a good credit card. The best credit card for this age group is one that offers low interest rates with low or no annual fees.

  • Unsecured Credit Cards: Now is the time to take off the training wheels, so to speak, and upgrade from a secured credit card to an unsecured credit card.
    • With higher limits, users can achieve a better credit score, as long as they make sure to use 30% or less of available credit.
    • Find a card with no annual fees and a low APR.
    • Keep an eye out for other benefits such as late payment forgiveness.
  • Rewards Card: Young professionals can earn rewards to use toward travel, gas, clothes, and more, or receive cash back on their purchases.
    • A good idea for users who travel frequently.
    • Consumers who use their credit card for the majority of their monthly purchases but pay off their statement on time and in full every month benefit the most from having a rewards card.

Military Personnel and Veterans

Active duty military personnel, veterans, and their families have access to credit card benefits civilians do not. Some of these include:

  • Credit Unions and Their Credit Cards: Some credit unions are only open to military personnel, veterans, and their families, such as USAA and Navy Federal Credit Union. These credit unions offer credit cards to military families that often feature low rates, no annual fees, good rewards programs, and other benefits.


  • For credit card tips, as well as general financial advice, military personnel, veterans, and their families should follow the Military Money Manual blog.

Married Couples

A married couple’s general credit card habits should not change, but one thing to consider is whether to open a joint credit card account or not.

  • Rewards Cards: Married couples, especially those with families, should consider getting a rewards card. Rewards cards can earn cash back on purposes, or points that can be used towards expenses including:
    • Groceries
    • Gas
    • Vacations
    • Retail purchases
  • Joint Account: Married couples can also consider opening a joint credit card account. Significant others can be added to existing credit card accounts, or new accounts can be opened together.
    • If adding a significant other to an account, the original account holder is ultimately responsible for the balance on the account.
    • Opening a joint account can be a good way to align financial goals and spending habits.
    • Joint accounts allow both partners to track and manage spending.
    • Joint accounts do affect credit scores for each individual member of the couple, so keep that in mind.


Retirees have lengthy credit histories (long enough to excuse any long-past mistakes) and paid off most long-term loans. As a result, retirees may benefit from good credit histories and a lack debt by receiving the best terms on their credit cards.

  • Unsecured Credit Cards: It is important to keep using credit cards, even in retirement. After a long period of inactivity, no credit score may show up for a retiree. Make some regular, small credit purchases on an unsecured credit card to keep your credit history open.
    • Retirees may get some of the best terms on their credit cards, such as:
      • Low interest rates
      • Low or no annual fees
  • Rewards Cards: Retirees may also receive some of the best terms on rewards cards that can earn bonuses including:
    • Cash back to be used to supplement a fixed income
    • Travel rewards
    • Points for everyday expenses including groceries and gas

Applying for a Credit Card

Questions to Ask

When applying for a credit card, do some research or ask a representative to answer the following questions. These questions will be helpful in deciding the pros and cons of having that particular card, as well as what the true cost of the card will be.

Interest Rates

  • Is there an introductory rate, or a special lower interest rate given to new cardholders?
  • If so, how long does that introductory rate last?
  • What is the card’s annual percent rate (APR)? The APR is the interest rate for the whole year, and may be a variable rate.
  • Are interest rates fixed (stay the same) or variable (change from time to time)?
    • If variable, how will you be notified of any change?
    • For fixed and variable, will you be able to change the rate and how?
  • What is the grace period before interest is charged?


  • Is there a fee to apply for the credit card?
  • Is there a processing fee? Will you charged a fee when you make transactions using the credit card?
  • Will you be charged an annual fee to use the card?
  • Will you be charged a late fee for any late payments, and how much?
  • What happens if you go over your credit limit?
    • Is a fee charged?
  • Is there a fee to close the account (called an account termination fee)?
  • Are there are any other fees and how are they incurred?

Credit Limit

  • What will the credit limit be?
  • Can the credit limit be raised?
    • After what period of time?
  • What credit history will be needed?

Identity Theft and Fraud

  • What happens in the case of identity theft?
    • Does the credit card company offer identity theft protection?
    • Or reimbursement in the case of identity theft?


What Should I Do If My Application Gets Denied?


Your credit card application could be denied for a number of reasons, including:

  • You have no or a limited credit history
  • The credit card company may think your income is too low for that particular card
  • You have a bad credit history or have been delinquent on past bills
  • You don’t fit the qualifications for the card
  • There’s an error on your credit report
  • You have too many new credit inquiries – if a credit card company sees you have many recent inquiries, they may think you are desperate for credit and are a high risk borrower

Here are some steps to take after your credit card application has been denied and why they’re important.

  1. Find out why. Your application may have been denied for any of the reasons listed above, but you won’t know which reason until you’ve read why. When a credit card company rejects your application, they are required to send an adverse action letter within 10 days. When it arrives, read it carefully.

  1. Become a more attractive applicant . You now know why your application was rejected – work on what they told you. Improve your credit by following our Tips to Get Good Credit. Pay off and close any credit cards you don’t use often or don’t need anymore. Take a look at your credit reports to find other problem areas.

  1. Apply for a card that is right for you. You may have been rejected because you applied for a card out of your income level or for someone with different credit. Research to find a credit card that fits your finances. One option may be a secured credit card , which many people use as a “training” credit card before graduating to an unsecured credit card.

Reading and Understanding the Fine Print

Credit cards may promise “0% interest,” “no fees,” and “credit up to $25,000,” but it is crucial that consumers read the fine print before applying for a credit card to know what they’re really getting. The fine print, known as the terms and conditions , is the terms you agree to when you apply for a credit card. Hidden in the terms and conditions can be fees, true interest rates, and the credit card company’s rights – such as the right to raise your interest rate at any time, for any reason.

A 2013 study by J.D. Power found that only 47% of credit card users “completely understood the terms of their credit card, and 73% were unsure what their interest rates actually were. Most consumers either do not take the time to read their terms and conditions, or don’t know what to look for in the fine print. Not knowing can cost you money and put you in more debt. Here are some things to look for when reading the fine print.

  • APR: When credit cards advertise an introductory rate of 0% or some low rate, they are advertising just that – a rate when you first get your card.
    • Read the fine print to check when that introductory period ends.
    • Then read what your APR would be after the introductory period.
      • Check if there are any circumstances that would automatically raise your rate, even during the introductory period, such as:
        • A late payment
        • A missed payment
        • Using less than a specified minimum amount of your credit
        • Using more than a specified maximum amount of your credit
  • Payment Allocation: It is possible that charges on your credit card could carry different interest rates, such as:
    • Using your credit card during and after the introductory rate period
    • Using your credit card for credit purchases and for cash advances

One rate may be higher than the other, in which case you would want to pay off that higher rate first to avoid accruing more interest. However, the fine print may dictate otherwise, saying payments would automatically go to the portion with the lower interest rate. Read the terms and conditions to see how payments are allocated and if you are able to request how they are allocated.

  • Fees: The credit card company may charge fees for certain actions, and the only way consumers know may be in reading the fine print. Some of these fees may include:
    • Late fees
    • Missed payment fees
    • Over-limit fees for exceeding the card’s credit limit
    • Transaction fees
    • Overdraft protection fees
    • Cancellation fees
  • Default Purchase Rights and Rates: If you fail to make your credit card payments, the credit card company may close your account and you’ll be on the hook for the balance. This is called defaulting on your debt . When this happens, the credit card company may be able to sell your defaulted balance to another company, who may charge a higher interest rate on that balance. When reading the fine print, look for:
    • Default purchase rights: If you default, can the credit card company sell your debt to another company, such as a collection agency?
    • Default purchase rate: If they can sell your debt, what will the new interest rate on that debt be?


  • Changing Terms and Conditions: Lastly, credit card companies may reserve the right to change the initial terms and conditions of your credit card at any time, as long as they provide notice. They could change anything including:
    • Interest rate
    • What fees are charged
    • Value of fees
    • Credit limit
    • Grace Period
    • Rewards


Reading a Credit Card Statement

You’ve been approved for a new credit card. Congratulations! As you use your card, you’ll soon begin to receive credit card statements. Learn how to read your statement – and know what to look for – to make sure your card is being used wisely (and being used only by you). As we build out our own tool visit to check out a very helpful in-depth credit reader.

Some things to look for on your statements:

  • Transactions: Be sure all transactions on there were transactions you made. Otherwise, you may be the victim of fraudulent charges and/or identity theft.
  • Minimum Payment : If you have made purchases on your credit card for the statement period, this is the minimum amount you must pay each month. The minimum payment may either be a set value (such as $10 per month) or a percentage of your statement or account balance. Check your card’s terms and conditions to find your minimum payment.
  • Statement balance : This is the amount of money charged to your card, or the new debt incurred on the card, during the statement period.
  • Account balance : The total amount of money owed on your credit card is your account balance. It may be listed as the “new balance” for that statement period.
  • Credit Limit: The statement will show your credit limit and how much of that is available, based on your account balance. Generally, consumers want to use no more than 30% of their available credit, or risk hurting their credit score.
  • Payment Due Date
  • Interest Rates Charged: Your statement will list the interest rates charged for different kinds of transactions, such as the interest for a credit purchase versus a cash advance.
  • Notices: Your statement may include:
    • Warning of any additional fees or higher interest rates in case of late or missed payment
    • Notice of changes to your
      • Interest rate
      • New fees
      • Any other changes to the initial terms and conditions.
    • By law, your credit card must notify you in writing of any changes at least 45 days in advance.
  • A year-to-date summary of the total fees and interest accrued
  • Rewards earned and your new rewards balance (if applicable)

Making Payments

Make sure that you are using your credit card responsibly to develop healthy, successful payment habits that will help build credit.


After you start using your credit card, you will receive your credit card statement once a month (see our guide to reading a credit card statement ). There are three important numbers on your statement:

Credit card companies will generally give customers the option to pay either the minimum, the statement balance, or the entire balance owed. So what should you pay?

  • Whatever you pay, above all, pay your bill on time. The minimum payment is not ideal (for reasons we’ll detail shortly), but paying it is better than paying nothing at all. Know your statement’s due date and pay on time. Many companies offer automatic monthly payments – set yours and never worry about paying late again.
    • Do not miss payments. Mark on your calendar when payments are due. If you are struggling financially, it is always better to pay the minimum instead of missing a payment.
      • Additionally, remember that there may be a lag time from when you issue your payment, to when the payment is processed by the credit card company. Take this into account so that you’re not unintentionally late on a payment.
    • Missed and/or late payments may trigger fees or raise interest rates. Again, pay your credit card bill on time.
  • Do your best to make more than the minimum payment, especially if you are past the introductory rate or have triggered higher interest rates. The amount left on your balance after the minimum will accrue interest, adding to your debt and the amount you will have to pay off later. For example:
    • Say you have an account balance of $1000.
    • Your annual interest rate is 12%.
    • The minimum payment is 2% of your outstanding balance.
    • If you make no additional charges – as in you stop using your credit card – it will take 70 months (over 5 years) to pay off your debt.
    • In that time you will pay $393 in interest charges, or nearly 40% of the amount owed in the first place!

Of course, the average consumer will keep using the credit card during this time, adding to the account balance and the amount owed, and the amount earning interest. You can see how easy it is to slip into debt – and how difficult to pay off that debt – when making only the minimum payment each month and letting interest compound.


Benefits to Paying More Than the Minimum

  • Save Money on Interest
  • Pay Off the Account Balance Sooner
  • Get a Better Credit Score
  • Have More Available Credit
  • Make Your Debt Manageable
  • Encourage Only Using the Available Credit That You Need
  • Be More Attractive to Lenders

How to Pay

Generally, after receiving a monthly statement, credit card users can pay their bill through:

  • Check
  • Electronic debit
  • Automatic payment

If paying by check through the mail, check the card’s terms and conditions to make sure by when your payment will need to be postmarked.

Obviously, an automatic payment is easiest and recommended. You can choose to set up an automatic monthly payment debited from your bank account for either:

  • The minimum payment
  • The monthly balance

Go to your credit card company’s website to see if this an option and to set your automatic payment.

  • Once enrolled in the automatic payment program, still keep a tab on your monthly statement and the amount owed.
  • Also, be sure there are sufficient funds in your bank account in advance of the payment date to avoid overdrawing your account and potentially missing a payment.

Canceling a Credit Card

After using a credit card for several months or years, you may find the card is not right for you. You may have improved your credit score and are able to get a better interest rate or reward benefits. Maybe you need a higher credit limit, or you may find you prefer one company to another.

Steps to Canceling a Credit Card

  1. Pay off the remainder of the balance on the card. Never leave a card with an outstanding balance – the balance will continue to accrue interest, may go into default, or may be sold to a collections agency that will charge a higher rate of interest on the outstanding balance.
    • Again, do not cancel a credit card with an outstanding balance. The credit card company may significantly raise the interest rates on the balance – as is their legal right – until you have paid it off.
  2. Call the credit card company or go online to cancel.
  3. Mail the credit card company a cancellation in writing saying you are closing your account. Include your name, address, and account number. It is a good idea to send your letter through certified mail to prove the company receives your letter.
  4. Wait a month or so, and then check your credit report to make sure the account closure is reflected in it. Also be sure that the report says the account was closed at customer’s request, and not “closed by creditor” – that inaccuracy will reflect poorly on your credit history. If there is an error on your credit report, you’ll need to get in touch with the credit card company to fix the mistake.

What to Consider

Canceling a credit card can impact your credit score, so be sure to consider the potential ramifications first.

  • Your available credit impacts your credit score, and canceling a credit card may hurt that, both in terms of:
    • Total amount of available credit: If Card A has a $1,000 credit limit and Card B has a $2,000 limit, canceling Card B will have a greater impact on your amount of available credit than canceling Card A.
    • Amount of credit used: Using the same cards from the previous scenario, say you have $500 in credit card debt.
      • If you close Card A, you are using 25% of your available credit, a healthy ratio.
      • If you close Card B, you are now using 50% of your available credit, an unhealthy ratio that may hurt your credit score.
  • The length of your credit history also impacts your credit score. A closed account no longer appears on your credit report after 7 years if delinquent, and 10 years if closed on good terms. Canceling one of your older credit cards which you paid on time and in full can shorten your credit history and erase years of responsible credit card usage from your credit report.

  • A factor in calculating your credit score is the mix of different kinds of loans and debt you have. Having different kinds – such as mortgages, auto payments, and credit cards – helps improve your score. Before canceling a credit card, consider how that would affect your mix of debt and credit.