Have you ever opened your mailbox just to find heaps of credit card offers? After a person’s eighteenth birthday, creditors love to send flyers urging them to apply for their first credit cards. Typically, they will offer a reward for signing up. These most often include rewards like cash back, points you can redeem, 0% intro APRs, gift cards, signup bonuses, etc. But as a newly eighteen-year-old, what should you do if you don’t know what any of that means? What does APR stand for? Does it affect my credit? How is my APR determined? How does paying my minimum payment benefit my credit? Should I be paying more than the minimum? If that describes you- good news! You are in the right place.
A lot of people fear the uncertainty, and therefore ignore that credit exists. While it is possible to finish college without ever opening a credit card, there are significant benefits to learning about credit, what it can do for you, how to build healthy credit and the habits that come along with it. Learning the vocabulary that is used surrounding credit and credits cards is essential to one’s financial success.
APR: What Does it Mean? How is it Determined? Why is it so Important?
APR stands for Annual Percentage Rate. According to Credit.org, it is “the interest rate being charged on a debt.” Basically, the total balance on your credit card will be multiplied by your APR, which is first divided by 12 months, at the end of each billing cycle, and you will be charged that amount in interest payments. If you’ve ever heard someone recommend paying off your credit card in full each month- this is why. The less you have on your statement, the less you will pay in interest. APRs are determined based on a number of factors. The most significant factor is the borrower’s credit score.
What is a Credit Score? Where Can I Check my Credit Score?
A credit score is a fluctuating number from 300-850, the higher the score, the better the credit. Your personalized score is determined by five factors: (1) payment history– did you pay your payment on time? (2) utilization– are you using your credit card? Too much? Too little? (3) length of history– how long has each line of credit been open?, (4) shopping for credit– how often do you shop for credit and open new accounts?, and finally, (5) mix of credit– do you have a diversified credit history- loans, credit cards, etc. Staying on top of these factors will ensure a healthy credit score- which means lower APRs in the future, and better offers from creditors, loan servicers, mortgages, etc. If there is an issue, such as not paying at least your minimum payment at the end of each billing cycle, your credit score can suffer. Visiting websites like will provide you with an estimation of your current credit score.
What is a minimum payment? What happens if I don’t (or can’t) pay it?
A minimum payment is “the minimum amount that a credit card company requires you to pay toward your debt each month.” If you forget to pay at least your minimum payment, you can incur late fees and your credit will be negatively affected. This has to do with the payment history aspect of your credit score. Although paying only the minimum payment prevents a late fee, it is typically recommended to pay more than just the minimum. The reason behind this is as follows: if you have no remaining balance on your statement, you will not pay interest. Even if you are unable to pay the entire payment, the lower the remaining balance, the lower interest you will be charged.
If you find yourself unsure of credit card terms, offers, or how credit works, please make an appointment with us at Powercat Financial! You can schedule an appointment through Navigate under Financial Services, or by clicking on this link: Powercat Financial Counseling Appointment.
If you come across a term related to credit cards that was not covered in this post, visit the website down below to search and learn more.
https://credit.org/financial-terms-glossary/
Upcoming PF Events:
Live Your Best Life- Live Your Best Life is a fun, interactive simulation of real-life post-graduation budgeting decisions hosted by Powercat Financial in partnership with Meritrust Credit Union on Oct. 16th from 12:00am-1:30pm in the K-State Union Courtyard. During the event students will be assigned a career and salary then visit stations to choose optimal housing, transportation, insurance, food plus more. See if you can balance your budget and meet your financial goals. Snacks will be provided, and prizes can be won!
Katelyn Silcox
Peer Counselor I
Powercat Financial
www.k-state.edu/powercatfinancial
