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A Crash Course on Credit Cards

Posted on by Cheryl Rauh

What is a credit card?

Photo of a stack of credit cards.

A credit card represents a line of credit (money available for borrowing) that allows the card holder to borrow funds quickly. Think of swiping your credit card like taking out a mini loan for whatever you are buying. Similar to loans, you are expected to pay back the amount you borrow. This amount normally comes due at the end of the month. If you miss your monthly payment or carry a balance forward into the next month (owe money on the card), the company you are borrowing from will charge you the predetermined interest rate. The average interest rate on credit cards currently is 21.68%. When you are issued your credit card you will notice that there is a credit limit, this is the maximum amount you can borrow on your card. Overtime, this limit can be increased if you are managing your card well.

Differences between Credit Cards and Debit Cards

Credit Cards
 Debit Cards
  • Connected to line of credit
  • Monthly bill for purchases
  • Interest builds on unpaid balances
  • Additional fees
  • Builds credit history
  • Fraud protection (liable up to $50)
  • Connected directly to your bank account
  • No monthly bills for purchases
  • Overdraft fees if money runs out
  • Requires pin number
  • Fraud: liable up to 50$ if reported within 2 days; if 2-60 days liable up to $500

Managing your credit card:

Credit cards can be a big responsibility due to the potential for them to be mismanaged. If you are not careful you can rack up a lot of debt and fees that you might not be able to pay off. Additionally, if you miss payments or misuse your card it can hurt your credit score. Your credit score is like your financial GPA and is calculated based on five different things.

Credit Score Factors Graph: 35% Payment History, 30% Amounts Owed, 15% Length of History, 10% Types of Credit, 10% New Credit

  1. Payment History: 35% of your credit score is based on if you make your payments or not. Be careful not to miss payments!
  2. Amounts Owed: 30% of your credit score is determined on your usage of the credit made available to you.
  3. Length of History: 15% is determined by how long you have had credit; the longer the better.
  4. Types of Credit: 10% is effected by how many different types of credit you have. It is actually good to have several types of credit (i.e. a mortgage, student loans, and a credit card).
  5. New Credit: 10% is based on how often you apply for credit.

Finally, to check your credit report, you can go to this website for a free credit report three times a year (due to the pandemic, you are currently able to check your report weekly): Annualcreditreport.com. Your credit report is like your financial GPA, it includes information about your credit accounts, account payment history, and credit limits. It is important to check your report frequently to catch identity theft. Any credit usage under your name and social security number will appear on the report. If there is activity that you know isn’t you then sound the alarm! (Identity Theft Information). Your report will also show your credit score which is like your credit worthiness. Credit scores can range from 850 to 300. The higher your score the better with 700 or higher considered excellent. Having a good credit score is important because if you have a low credit score you could pay higher interest, have a lower credit limit, and it can even impact your employment or renting opportunities.

Three Helpful Tips:

To maximize your credit card for your benefit, I recommend keeping these tips in mind:

  1. Pay off your credit card every month so that there is a zero balance at the end of every month.
  2. Only use 30% of your credit limit. For example, if your credit limit is $2,000 you should keep spending to a maximum of $2,000 x .30 = $600. This means that you should try to keep your credit card spending under $600 for a month.
  3. Shopping and applying for credit cards can decrease your credit. Make sure you only apply for one credit card at a time!

Helpful Links:

If you have any questions about credit cards or want to learn more, please feel free to schedule an appointment with us at Powercat Financial. All appointments can be made on our website: Powercat Financial.

Abram Mugler
Peer Counselor II
Powercat Financial
www.k-state.edu/powercatfinancial 

Taking Control of Your Financial Future

Posted on by ekoochel

What do we all have in common regardless of our age or major?  At some point, we will need to manage our own finances (or we already are).  This can be scary for some, and confusing for others.  Knowing where and how to start is critical.  Regardless of where you are in life, these are simple steps to help you take control of your financial future.

Begin with a budget

If you already have a budget – great!  Make sure you are reviewing it regularly and adjusting for life’s changes.  If you don’t have one, now is the time to start.  Even if you do not have a regular income you can budget the allowance you get from your parents, or student loan and scholarship money you receive each semester.  This is especially important if you are receiving lump sum payments, and you need these funds to last the entire semester.  You can use the spending plan worksheet at k-state.edu/pfc/budgeting/ to help you get started, or make an appointment with Powercat Financial.  Other budgeting tools can include using an online App such as mint.com.

Check your credit report

Checking your credit report is important.  A credit report is a summary of your financial reliability – your history of paying debts and other bills.  The three credit bureaus are Transunion, Equifax and Experian.  You can obtain a free credit report once a year from each of the three bureaus at annualcreditreport.com.  We recommend requesting one every four months (for example – Transunion in January, Equifax in May, Experian in September) to identify fraudulent activity or errors, and track your credit history.  Also note, the report does not include your credit score (the numerical value calculated from information in your credit file that is used by lenders and landlords to assess your “credit risk” at that time), but you can get your free credit score at creditkarma.com.

Set up an emergency fund

Pay yourself first!  This sounds simple, but the easiest way to contribute to a savings account regularly is to set up an automatic transfer from your checking to your savings account.  Having an emergency fund of 3 to 6 months of expenses can keep you from using credit (and paying the interest) or stressing about money in an emergency.  Just make sure to only use it in an emergency and to replenish your savings afterwards.

Get out of debt

Whether you have credit cards, a car payment, or student loans, it pays to get out of debt.  Paying only the minimum on your credit payments ensures you will pay the maximum amount of interest.  Even paying a little extra on your payments can help you save a lot of money in interest – and this just means more money in your pocket in the long run!

Take a class

April is financial literacy month.  We encourage you to explore your finances through expanding your education.  SALT is a free resource available to current K-State students and alum.  You can find SALT courses that explore a variety of financial topics, and they do not require a huge time commitment – usually, they can be completed in about 30 minutes.  Additionally, SALT has articles, infographics, and other resources to help you become financially savvy, so sign up today at saltmoney.org.  For every SALT course you complete during the month of April, you are entered to win a $250 scholarship from Powercat Financial Counseling.  If you want to explore your personal finances in more depth, K-State also offers an introduction to personal financial planning class.  Finally, if you ever have questions, or need some help with your financial situation, we would love to meet with you individually.  Just make an appointment at k-state.edu/pfc/.  Good luck and remember, now is the time to take control of your financial future!

Shari Humbard

Peer Financial Counselor I