5 Things I Wish I’d Learned About Credit Cards When I Was Younger

I don’t know about you, but I don’t use a whole lot of what I learned in school in my actual adult life. I was taught the quadratic equation, how to use a Bunsen burner, and how to diagram a sentence, but those skills don’t come up often for me. I really wish I’d learned more about personal finance, though.

Credit cards are a part of everyday life for many people, and I know I would have struggled less with debt and poor credit management if I’d learned more about how they work before I could get one for myself. Here are a few facts about credit cards that it would have been nice to learn sooner.

1. Interest is charged daily

One reason why credit card debt can be dangerous is because of how credit card interest works. Not only are credit card APRs very high when compared to other ways of borrowing money (the average credit card APR was 24.52% earlier this month, according to Forbes), but it’s charged on your balance every day. So every day you carry a balance, you owe more money to pay it off. If you want to avoid ever paying interest on a credit card balance, you have to pay it off in full every month.

2. Opening a new account can ding your credit score…

While I knew that credit card issuers check your credit when you apply for a new card, I didn’t realize the impact this can have on your credit score. There are two kinds of credit checks: hard and soft. Applying for a new credit card means consenting to a hard credit check, and it can lower your credit score by a few points.

This is generally not a big deal, but if you apply for new credit frequently, five points here and there can add up — especially if your credit score is already on the cusp of the lower designation. If you’re just barely in the “good” range, a few hard credit checks can dip you into “fair,” which limits your opportunities for future approvals (and more favorable interest rates on loans).

3. …and so can closing an old one

Credit card account management is full of potential pitfalls, and one that you might not expect is the impact of just closing an account. When you close an old credit card, it can hit your credit score due to a few factors. You lose the line of credit, which might be propping up your total credit limit. If you’re already carrying a balance on other cards, this can raise your credit utilization ratio. It’s recommended that you keep this number (the percentage of your credit that you’re using at any given time) under 30% to avoid credit score damage.

So if you have a total limit of $20,000 between credit cards and you’re carrying balances totaling $5,000, your credit utilization ratio is 25%. But if you close a card you’re not using that has a limit of $5,000, you suddenly have a credit utilization ratio of 33% ($5,000 balance on a $15,000 total credit limit) and could lose some credit score points as a result. I did recently close my oldest active credit card, but thankfully only lost two points in the process — but I also made the decision after careful consideration and after I got my credit score above 800.

4. You can match credit cards to your spending

There’s an amazing variety of credit cards out there — I never realized just how many different issuers, card types, and perks were available until I joined The Ascent’s editorial team. Thanks to this revelation, I’m always trying to maximize the benefits of the cards I have, and I chose the two new ones I’ve added to my wallet in the last year specifically to do just that.

I like to cook, so I got one of the best cards for grocery spending to earn a lot of cash back on my food spending. I’ve also been making travel a higher priority in my life this year, so I added a credit card to translate my travel spending to points to apply toward more travel in the future (and save me on foreign transaction fees). However you spend, chances are, there’s a credit card out there for you.

5. The higher your score, the better cards you can qualify for

Of course, this is certainly logical. But when I was younger, I didn’t realize the great variety of credit cards out there to apply for. And it also stands to reason that when you have an exceptional credit score, doors open for you and you can qualify for just about any credit card you want (with the possible exception of extremely fancy cards targeted at people with a higher net worth than I’d have in 10 lifetimes).

Want a premium travel credit card that offers free checked bags on flights, airport lounge access, and even reimbursement for TSA PreCheck? Cards like this do exist, and if you get your credit score up to “very good” or higher, you can likely qualify for one.

Credit cards can be useful personal finance tools. Wouldn’t it be nice if managing one was something they taught us in school?

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