21 Important Credit Card Tips I Really Wish I Learned In School

A credit card can actually help your credit score a lot — if you use it the right way.

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After I opened my first credit card in my early twenties, I ~thought~ I had everything under control. I used it just once, to buy a new laptop after my old one finally died. But because I only paid the minimum each month, two years later I still owed basically the same amount and felt totally trapped.

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Moral of the story: Don't be like past me.

Sadly, stories like mine are super common but they don't have to be. Since then, I've learned a lot about using credit responsibly by paying on time and keeping my balances low. I paid off my debt, and these days I'm all about making my credit cards work for me (hello, cash back).

So here are 21 things everyone in their twenties should know about credit cards:

BTW, don't feel bad if some of this stuff is new to you! You're definitely not alone. I've totally been there, and learning more about credit cards was the first step that helped me get my debt situation under control.

1. A credit card might look like a debit card but the way it works is totally different.

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Your debit card is connected directly to your bank account; so when you swipe it for a purchase, the money comes right out of your account. It's kinda like writing a check but way faster. When you pay for something with your debit card, you're using your money.

But a credit card is more like an open-ended loan. When you use a credit card, the creditor (think Visa, MasterCard, etc.) pays for your purchase. Then, at the end of your billing cycle, you'll get a statement listing all your transactions for the month. Your statement should also show your previous balance, new balance, minimum payment due, and the date that it's due by. When you pay for something with a credit card, you're essentially borrowing money that you'll have to pay back later.

2. Credit cards come with credit limits, and you should try to avoid hitting yours.

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When you apply for a credit card, your bank or credit card company goes through a process called "underwriting," wherein they decide whether or not to approve you for credit then set your credit limit and interest rate. Each company does underwriting a little differently, but generally they'll check your credit reports and income when setting your credit limit.

If you hit your credit limit on a card then it's maxed out, which can lead to higher monthly payments, declined charges, and damage to your credit score.

3. Having a credit card could help or hurt your credit score, depending on how you use it.

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Your credit scores, aka the numbers that lenders pull when they're deciding if you're eligible to borrow, are based on information from your credit reports held by the three credit bureaus: Experian, Equifax, and TransUnion. And the FICO credit score (aka the one that's used in more than 90% of US lending decisions) places a lot of importance on your loan and credit payment history — it makes up 35% of your score to be exact. So for a healthy credit score, you'll want to make sure you always pay your credit card bill on time.

Payment history isn't the only way your credit card use can impact your credit score. Your credit utilization, or what percentage of your available credit you use, accounts for 30% of your score. To improve your credit score, you'll want to keep your credit card balance as low as possible.

BTW, if you're not totally clear on what credit scores are all about, you might like this handy credit score guide.

4. Credit card companies make money by charging interest and fees.

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Since a credit card works a lot like a loan, credit card companies make money on finance charges and other fees. In the credit card world, interest is often talked about in terms of something called an APR. This stands for annual percentage rate, and it shows you the cost of carrying a balance on your credit card. If your APR is set at 20%, this means that you'll be charged 20% interest on your debt if you carry a balance. For example, if you have a $100 balance on your credit card for a year and your APR is 20%, you'll get charged $20 in interest.

If you always pay your balance in full every month, you most likely won't pay this APR. But you might still be charged certain fees depending on your credit card. For example, if you opt for a rewards credit card (more on that later) then you'll likely pay an annual fee.

Credit card companies don't just make money on consumer fees and interest. They also charge merchants processing fees so they're making money every time you swipe your card at the gas station or grocery store.

5. Most credit cards offer a grace period when interest charges aren't applied but only if you pay in full every month.

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Basically, the grace period is the time between the end of a billing cycle and the day that the bill is due. If you pay off your balance in full during the grace period, then you won't have to pay interest on what you owe. Credit cards don't have to offer a grace period, but tons of them do.

Keep in mind that grace periods don't necessarily apply to some transactions (like cash advances), but we'll get to that later.

6. But after the grace period, interest charges start getting added to your balance.

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Also called finance charges, the interest that you owe on your credit card can be calculated in a couple of different ways. The most common method uses your average daily balance during the billing cycle to determine how much interest you owe.

If you have a credit card and aren't sure how your finance charges are calculated, take a look at your card member agreement. It should have a section (usually right underneath the interest and fees tables) called something like "How we calculate your balance."

If you're carrying a balance and you know that your interest charges are based on your average daily balance, making a couple of payments throughout your billing cycle (instead of waiting until you get your bill) can save you from paying more interest by lowering your balance throughout the month.

7. Most credit cards have variable interest rates, which means that the amount of interest you pay on the same amount of debt can change over time.

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As of 2018, over 90% of general-use credit cards had variable interest rates. But your interest rates won't go changing willy-nilly. Instead, variable credit card interest rates change based on ~yet another rate~ called the index rate. The index is tied to the economy; so if the Federal Reserve raises its interest rates, variable interest rates will rise as well. If you have a card with a variable interest rate, your credit card company doesn't have to notify you when your rates go up or down.

When it comes to private-label credit cards, like a retailer's store card, these are often split about 50/50 between fixed and variable interest rates. However, retail cards tend to have higher interest rates overall, so a fixed rate isn't necessarily going to be cheaper than a variable one.

8. Making the minimum payment every month may keep debt collectors off your back, but if you can afford to pay more, you should.

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Credit card companies often set your minimum payments based on a percentage of your balance — with some as low as 1%. Some companies also add finance charges for the billing period to this percentage to determine your minimum payment. You can see exactly how your credit card company calculates your minimum payments by checking your card member agreement.

Either way, your minimum payment is likely to be pretty small compared to your total balance. And since it's so low, if you only pay the minimum then it could take a really, reeeeeeally long time to pay off your balance. Believe me, I found this out the hard way.

For example, MarketWatch calculated that it would take just over 30 years to pay off a $2,000 balance on a credit card making just the minimum payments. And even worse, you'd wind up paying over $4,000 (!!) in interest and fees. That's more than double the original balance over three decades of payments, which totally sucks. So it's a really good idea to pay more if you can. Even a couple of extra dollars a month will help you pay off your debt faster.

9. If you miss payment, you can get hit with extra late fees. But you might be able to get a fee waived if you usually pay on time.

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Missing a credit card payment by 30 days or more will hurt your credit score (remember that whole payment history thing?). But even if you're only a couple of days late, you'll probably still get charged a late fee. For 2021, the late fee for a first missed payment is capped at $29, while the fee for additional missed payments cannot go over $40. Some creditors might also raise your interest rate as a penalty, though it will usually come back down again after a couple of on-time payments.

The good news is, if you've never missed a payment before, you might be able to persuade your credit card company to waive your first late fee. Once you're paid up, give customer service a call to ask if they'll cancel your late fee.

10. If you're in the US, a credit card can offer more protection against fraud than a debit card.

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There are a couple of laws that protect consumers in the event of fraud, but the one governing credit cards offers a bit more protection. Under the Fair Credit Billing Act, you can only be on the hook for up to $50 if someone steals your credit card and takes it on a shopping spree. And many of the major credit card companies have their own zero liability policies in place so you won't have to pay if your card gets hijacked.

But debit cards fall under the Electronic Funds Transfer Act (EFTA). Under this law, you could be liable for up to $50 if you report your card stolen within two days, and you might still have to pay for up to $500 in fraudulent charges if you report the theft within 60 days of receiving your statement. And the EFTA offers no protection at all if you fail to report your stolen debit card within 60 days of your statement being sent to you.

Plus, if your debit card gets stolen, a thief has direct access to your bank account and can overdraft your account, preventing legit transactions (like oh, say, your rent check) from going through. It can turn into a big ol' mess pretty fast. But if someone swipes your credit card, they're technically stealing cash from your credit card company — not you. Your balance isn't affected and if your credit card has a zero liability policy, then you won't lose a cent. Because of the extra protections that credit cards offer over debit cards, it can be a good idea to use credit cards when you shop online instead of debit, just in case of hacks or data breaches. Just be sure to pay off your balance in full each month!

11. Knowing your credit scores and having your goals in mind will help you choose a credit card that works for you.

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It seems like there are about a million credit cards out there and each one comes with a lot of fine print and technical jargon that you've gotta weed through. So where do you even start if you want to open a credit card?!

A good first step is to check your credit scores. This will give you an idea of what kinds of credit cards are even available to you, as your scores can determine which cards you're eligible for and what interest rates you can get. If you haven't checked your credit scores before, you can easily get your FICO score (aka the one that's most likely to get pulled when you apply for a credit card) for free from Experian or through your bank.

Next, think about why you want a credit card in the first place. Are you building or repairing your credit, or are you hoping to cash in on some sweet rewards? Or do you just want to have a card in your wallet in case of emergencies? Figuring out what you want to get from your credit card will help narrow down the field.

12. Secured credit cards can be a helpful tool to build credit or rehab a low credit score.

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If you have low credit scores (or no credit scores yet at all) a secured credit card is one tool you can use to reach a ~healthier score~. When you open a secured credit card, you make a refundable deposit up front that's equal to the card's credit limit; so if you put down $500, then you'll have a $500 spending limit on your card. The credit card company holds this deposit as collateral, in case you rack up debt that you're not able to pay off.

If you use your card responsibly by making timely payments and keeping your balance low, then you'll be building a positive credit history and helping your credit scores. One easy way to do this is to just put one small regular bill on this card each month, like a streaming subscription and always pay it off. In time, you might also get the opportunity to graduate to a non-secured card and get your initial deposit back.

13. And if you're in school, you might also be able to qualify for a student credit card.

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When you're in school, student credit cards are another option that you might consider. These cards tend to have lower credit limits and higher interest rates than other consumer credit cards because they're meant for younger people with shorter (or nonexistent) credit histories. Some even offer perks for good grades, like cash rewards or raising your limits. These cards can be a good tool to bump up your credit scores before graduation, as long as you keep your balance low and pay it off in full every month.

14. Rewards cards can be great, but only if you have a great track record of paying your card off in full every month.

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Airline miles and cash back rewards can be quite enticing, but these kinds of rewards credit cards probably make more sense to use if you've already established healthy credit habits. Since credit card companies need to pay for all those nice rewards, these cards often come with annual fees or charge higher interest rates if you carry a balance. So if you wind up in a spot where you're not able to pay off a rewards card in full, interest and fees could easily add up to more than the value of any points or cash back rewards you earned.

If you decide that a rewards card is right for you, don't get tempted to spend more money just for the cash back or points. Just use your card for your regular purchases, always pay it off, and watch your rewards add up. Personally, I use my cash back card at the grocery store and pay it off every Friday. It's a simple system that works for me.

15. On the other hand, low-interest credit cards skip the rewards and can save you some cash if you do wind up carrying a balance.

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If you want to have a credit card as a backup for emergencies, you might want to look into low-interest (or maybe even 0% interest) credit cards. Like the name implies, these cards charge less if you wind up carrying a balance, lowering the cost of having debt. Unfortunately, they can be hard to get unless your credit score is in the "good" to "excellent" range, so it might take some time to build up your scores to get one. But if your scores qualify and you think there's a chance that you'll carry a balance, low-interest cards might be your best bet.

And BTW, even if you have an emergency credit card, it's also a good idea to put aside some money in an emergency fund. Having savings on hand can help you rely less on debt when life's little ~surprises~ pop up.

16. Balance transfer credit cards can help cut credit card debt by temporarily lowering your interest rate but you should do the math before you apply.

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If you're carrying debt on a credit card with high interest rates, balance transfer credit cards might offer some relief. They often offer low introductory interest rates in the first 6 to 18 months, which means that during that initial period you'll pay less in fees so you can pay more toward actually slashing your debt.

But like all credit cards, balance transfer cards come with downsides too. If you miss a payment during the intro period, your interest rates might start to climb. And if you're still carrying a balance after the low-interest honeymoon ends, rates and fees can jump pretty high. If you're considering a balance transfer, it's a good idea to do some math to see how much you'd need to put toward your debt each month to actually pay off your balance before the sweet intro rate ends.

17. Closing a credit card can actually hurt your credit scores.

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It's counterintuitive, but it's true. The length of your credit history is a factor that goes into calculating your credit scores and having a credit card open for longer is better for your scores. While there are situations when it makes sense to close a credit card, like if you're really struggling to get a handle on your spending or being charged hefty annual fees, it's usually a good idea to leave cards open for the credit score benefits.

Bonus tip: If you're looking for ways to improve your credit score, Experian has a feature called Boost that you might want to look into. It connects to your bank account and adds regular bill payments (like your cellphone, utilities, and Netflix subscription) to your credit report, which could increase your score instantly. When I did it, my score went up 10 points, so it's worth a try!

18. You can get a cash advance from your credit card but that doesn't mean that you should.

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A cash advance is when you use your credit card to borrow cash. You can do this by calling your creditor and setting up a pin number for your card. Then, you have to visit an ATM to take out the money you're borrowing.

But these transactions come with some heavy fees. First, your creditor will charge a cash advance fee, which is often a percentage of the amount you're borrowing. And you'll also have to deal with whatever fees the ATM you used charges you for the transaction. As if that's not bad enough, many credit cards have no grace period for cash advances, which means interest charges start right away and interest rates for cash advances can be higher than what you pay for regular credit card purchases. All that to say, the cost of a cash advance adds up fast.

TL;DR: It's nice to know you can borrow cash from your credit card, but because of the fees it's more of a last resort move.

19. Carrying some credit card debt can be normal but watch out for the warning signs that your debt is getting out of control.

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According to creditcards.com, as of March 2020, 47% of Americans had some credit card debt and the pandemic led one in three millennials to take on more. So if you've got credit card debt, you're far from alone. But if you find yourself paying off one credit card with another credit card, maxing out cards, or struggling to make even minimum payments, these are big red flags that it's time to seek out help.

20. You don't have to deal with credit card debt alone.

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If your credit card debt ever gets overwhelming, there are credit counseling services out there that can help you make a plan to pay it off. As an added bonus, these orgs often also offer financial education that can help you stay out of debt in the future too. According to the Federal Trade Commission, nonprofit credit counseling services tend to be the most trustworthy, and good credit counselors usually give out free information up front. If you're considering getting help with your debts, check out the FTC guidelines to make sure you pick the best credit counselor for you.

21. At the end of the day, if used responsibly, a credit card can be a helpful tool you can use to build or raise your credit scores, earn rewards, or cover emergency expenses.

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If you look at a credit card and see ~free money~, it can be pretty easy to run up too much debt. On the other hand, if you see credit cards as totally evil, you might shy away from them and miss out on opportunities to build your credit score. But there is a middle ground between these two extremes, where you think about and use your credit like a tool.

I probably sound like a broken record at this point, but seriously, do your best to pay off your balance in full each month. And if you have to carry a balance, try to keep it as low as possible. By using credit responsibly and keeping your credit goals in mind, you can reap the benefits and rewards of credit cards without the interest charges and stress that come with carrying too much debt.

Phew, that was a lot! Is there anything you think we missed? Share your credit card tips in the comments below, and check out more of our personal finance posts.