What 20-Somethings Want to Know About Credit Cards (Part 2)

/ BY / Credit 101

Here are some more questions that were asked by young adults who have never had a credit card.

What does APR mean?

APR stands for annual percentage rate. It’s the rate of interest that you’ll pay over the course of a year if you carry a balance on your credit card account.

How is the APR different from the periodic interest rate that they show on a credit card statement?

The monthly periodic interest rate is the rate that you pay on your balance on each credit card statement. You can find your monthly periodic interest rate by dividing the APR by 12.

So if your annual percentage rate is 24%, your periodic interest rate is 2%.

There’s also a daily periodic interest rate. You can calculate that by dividing your APR by 365.

What does it take to qualify for a credit card? Will I have to get a co-signer?

Since the bank issuing the credit card wants to be sure it gets its money when it extends you credit, proof of a steady income is probably the most important qualification. If you’re married but not working, you might be able to qualify based on the income of your spouse.

If you’re under 21, you’ll have to prove that on your own you earn enough to make payments on a credit card. Otherwise you’ll need a co-signer on the account.

How many credit cards can I have? How many should I have?

You can have as many credit cards as you can get approved for. But you need to ask yourself why you’d need more than two or three, especially if you’re tempted to use them all. Having too many cards could be a good way to get yourself buried under credit card debt.

How many credit cards should you have? Maybe one that you use all the time, and a spare or two in case you lose that card and/or have some kind of emergency expense that you have to charge. Just be sure to use your backup cards occasionally so the bank doesn’t cancel them for non-use.

Will the bank warn me if I’m going over my credit limit?

No—but you do have some options if you’re concerned about going over your limit (and having to pay the fees that the bank charges when you do so).

The Credit Card Accountability, Responsibility and Disclosure (CARD) Act, which went into effect in 2010, set up the rules for over-the-limit transactions. Unless you specifically tell the card-issuing bank that you want to be allowed to exceed your credit limit, you won’t be allowed to do so. Your credit card will be declined if a transaction would push it over the limit.

You can opt out of the over-the-limit rule; you just have to tell your credit card company. In that case, your credit card won’t be declined—but you could end up paying some hefty fees for exceeding your limit.

When I pay with a debit card and use the credit option, the bank takes the money out of my account automatically. Will they do that with a credit card?

Most of the big credit card issuers will allow you to set up automatic payments. That means they’ll take whatever amount you designate—the outstanding balance, the minimum payment, or some other sum—out of your bank account on the date that you choose.

But don’t confuse a credit card with a debit card’s credit option. When you choose credit when using your debit card, the money is taken out of your account automatically and usually within a business day. With a credit card, you have to go through a process to set up withdrawals from your account, and those withdrawals are made only once a month on the day you designate.

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Please note your financial situation is unique and our tips & advice presented here may not be appropriate for your situation. CreditCardXpo.com recommends that you seek different advice & opinions from your own accountant or financial adviser who understands your individual circumstances before making any important decisions or implementing any financial strategy.