Credit Cards

A good credit score, for better or worse, is the foundation of a healthy financial life in our modern world. If there is one thing you are going to want to have, it's a good credit history and a good credit score.

A good credit score, for better or worse, is the foundation of a healthy financial life in our modern world. If there is one thing you are going to want to have, it’s a good credit history and a good credit score.

Your credit score is what banks and other lenders look at when you apply for loans for cars, homes, holidays, and all manner of other things. Even landlords and employers will check your credit history to make sure you are trustworthy in the eyes of lenders.

So the question is, how can you get a good credit score?

Well, there is a simple, foolproof way to build your credit score without the help of co-signers and with no prior credit history — get a credit card.

That’s right — if you get and use your credit card responsibly, you can actually improve your credit score.

It sounds a bit weird — getting yourself into debt to show that you’re good with money — but it really is the best way to build a good credit history.

Now, this will take a bit of time, and a lot of patience, but with the right financial tools and advice, you’ll be well on your way to building a fantastic credit history, which will, in turn, open all sorts of doors for your financial future. 

We’re talking about big holidays, job opportunities, and full financial freedom.

So how do you get a credit card? Which credit card is right for you? And how do you use a credit card to build your credit score?

Let’s have a look at:

Settle in, because by the end of this article, you’ll know everything you need to know about credit cards, and how you can use them to win at the credit card game. 

What should I look for when choosing a credit card?

First thing’s first, let’s look at the components that make up a credit card. When you are looking at the different types of credit cards, you should look for the following terms, as they mean a lot to your choice:

Interest rates

This is probably the biggest thing to look out for when choosing a credit card. The interest rate is the amount of money you need to pay on top of your original purchase. The interest rate is often called annual percentage rate (APR).

For example, if you buy a $600 tv with your credit card and have an APR of 17%, by the time you’ve paid off your purchase over 12 months, you’ll have paid an extra $56 in interest. 

Many cards offer introductory rates as low as 0% APR to entice people into signing up. However, those interest-free periods typically don’t last long at all — most range from 3-12 months, then jump to as high as 22%.

In short — get the lowest interest rate you can find that lasts more than just an introductory period.

Annual fees

Annual fees are the cost of actually owning the card, and are usually in the form of a yearly or monthly fee. These can range from as low as $0 to as much as $500 a year. Keep in mind that if you have an annual fee, you will have to go out of your way to cancel it before the year is up — otherwise you’ll be paying for it each year for as long as you keep that card.

Transaction fees

Transaction fees are the fees you pay every time you make a purchase on your credit card. This can be in the form of a percentage, such as 3%, or it can be a flat fee such as $5 for each transaction. For many people, these fees can add up quickly and they might not even realize it. 

Make sure you know how much each transaction costs before you choose your credit card.

Credit card limits

Credit card limits are the maximum amount of money you will be able to spend with your credit card. It may sound limiting, but it’s really not, as long as you only use the card for purchases that are under this limit.

For example, your credit limit might be $500. If you have a purchase that is over that limit — let’s say a new television costs $550 — then you would have to pay the extra $50 with another method, such as cash. In general, however, we don’t recommend maxing out your credit card, as this shows lenders that you are living at the limits of your means.

What are the different kinds of credit cards?

Once you understand the terms above, it’s time to look at the specific types of credit cards on offer.

Student credit cards

Student credit cards are a good option for those who are about to go into college and want to build their credit. They charge lower interest rates and come with lower limits, which can help you manage your spending better. 

Debit card

A debit card is a secured bank account with a little bit of plastic attached to it — it allows you to make purchases as well as cash withdrawals. A debit card will work like a credit card, but the difference is that the money comes from your own account instead of borrowing from the bank. If you prefer not to have debt at all, this might be a good option for you.

Prepaid credit card

A prepaid credit card is exactly what it sounds like — you load money onto the card before using it. The good thing about this type of credit card is that you can’t spend more than what you have in your account.

Low APR credit cards

If you’re looking for a low-interest rate and have a relatively low annual income then a low APR credit card might be a good option for you. 

Rewards credit cards

With this sort of credit card, you get rewarded for using your card — whether it’s 1% cashback on all purchases or rotating categories with 5% cashback. These types of credit cards usually come with higher annual fees and no introductory APR rates. Because the interest rates are typically high, they are not recommended for people with low income or bad credit. 

Low-limit unsecured credit cards

If you don’t have a high annual income but still want to build your credit, then consider getting a low-limit unsecured credit card. Compared to other types of cards on the market, these have lower limits and interest rates — which should make it easier for people with less income to get their first card and begin building a credit history.

0% introductory APR credit cards

This type of credit card will allow you to make purchases upfront without paying any interest — provided that the balance is paid back within an established time frame. Make sure you pay your balance off before the higher APR kicks in, or you will be charged higher interest for all of your purchases. Note: 0% introductory APR credit cards usually come with higher annual fees and no rewards.

Store credit cards

These cards are only offered by specific stores and usually offer their best deals to shoppers who use their cards. The APR often includes an introductory period of 0%, allowing you to get the item you want without having to worry about interest rates. Just be careful if you can’t afford the balance in full at the end of the promotional period — otherwise, it will revert to the standard APR.

Credit card balance transfers

One of the easiest ways to reduce your interest rate is by transferring your credit card balance over to a lower APR card. A balance transfer only works if you have another account that offers a lower APR, but if you do then this can be an easy way to minimize how much money you are paying in credit card interest payments.

Secured credit cards

A secured credit card is a type of card that you have to put money on before you can use it. So if you want a $500 credit limit, you might need to deposit $500 of your own money onto the card first. Sometimes you might just have to make a deposit of say, $200 before you can use the card.

Banks issue these cards to ensure they will get their money back — if you don’t pay your credit card bill, the credit card company can take money from your deposit.

At the end of the day, it’s important to choose the card that will work for you, not the one that sounds the best. For example, a rewards credit card sounds, well, rewarding, but it will have a much higher APR than a low APR credit card. Choose with your head, not your heart!

How to choose the credit card that will work for you

Okay, we talked about all the different kinds of credit cards, but which one should you pick? It’s all about finding a credit card that will work for you and your financial situation, not necessarily the one that promises the world.

To find the perfect credit card for your needs, we need to look at a few different things, but the most important thing to consider, to begin with, is your credit score. Your credit score will determine what credit cards are available to you, so let’s start there.

We go into depth about credit scores in our article Your Ultimate Guide To Fixing Bad Credit — for Good, but as a quick guide, credit scores generally fall into four categories: poor, fair, good, and excellent. The scores for each category look like this:

Bad: 300 – 629

Fair: 630 – 689

Good: 690 – 719

Excellent: 720 – 850

For reference, the average credit score is 698, which puts most Americans in the lower end of the “good” category. Your credit score will depend on a ton of things, including the amounts you owe, how often you pay your bills, and how often you borrow — again, read our article about fixing bad credit to find out more.

So from here, you’ll want to find out what your credit score is, so you don’t waste time applying for credit cards that you won’t qualify for. To find out what your credit score is, Sovent can check your credit for free (no credit card required). 

You can also use free resources like NerdWallet and CreditWise where you can do it quickly online. Alternatively, you can ask one of the three major credit bureaus, Experian, Equifax, or TransUnion. Those credit bureaus are legally obliged to tell you your credit score as well as your credit report/history, so you’ll have no problem getting the information you need.

A quick note: Your credit report/history is not your credit score — those are different things. Your credit report/history is all of the information on how you borrow, spend, and pay back your loans. Your credit score is the number that determines your credit rating.

Okay, now that you have your credit score, let’s take a look at which cards will suit your credit score.

Credit cards if you have poor or bad credit

If you have low credit, you are best to choose something like a student credit card or a secured credit card. Student credit cards are easier to get, but your credit limits will be lower. Secured credit cards on the other hand will require your own money to be deposited onto it first, but the limits will be higher.

If you really can’t get either of those options, choose a store credit card. The limits on these are even lower than student cards or secured cards, but they are easier to get if you have bad credit. Plus, the interest rates are usually quite low, or come with a 0% APR introductory period.

Credit cards if you want low-interest rates

If you want low-interest rates (which you do), you’ll want to find a 0% introductory APR credit card that has a low interest rate after that introductory period.

Another option could be a Credit card balance transfer, where you transfer your credit card balances to a single card with a lower APR. Once again, your credit score will determine which cards you can get, so both of these cards might be a bit harder to get if you have a lower credit score.

Credit cards if you want rewards

The reason you want a credit card with rewards is that the bank is essentially paying you for using their card by offering points, miles, or cashback on your purchases. Rewards credit cards are a great option if you have good credit, and pay your outstanding balance in full every month — in fact, that’s the only scenario in which we would recommend a rewards credit card.

Rewards credit cards will generally have a much higher APR (to make up for the good stuff they give you), so you really need to know that you can pay it off in full every month to avoid those high interest rates.

Credit cards if you have good credit

If you have average or above-average credit, you can get pretty much any card out there. However, remember that the best card isn’t necessarily the one with the highest limit or most rewards — it’s the one that will work for your spending habits and pay off what you owe without charging too much interest.

What questions should you ask when choosing a credit card?

We’ve talked a bit about choosing a credit card that suits you, rather than what you think will give you the most spending ability. With that in mind, there are a few questions you should ask yourself before you pull the trigger on your preferred plastic.

Are there annual fees?

Pretty much every credit card will have an annual fee, but some can be as high as $500 a year! If the rewards don’t outweigh the fees, you might want to look for a different card.

Will your credit card limit automatically increase?

Some credit cards will automatically increase your limit in the future if you use them responsibly. This is great for when you want to make large purchases in the future, and don’t want to worry about not getting approved by your bank.

What benefits does it offer?

Credit card companies like to nickel and dime us with fees, so we need to make sure our cards have the benefits we need. This can be things like no foreign transaction fees, rental car insurance, roadside assistance, etc.

Can you pay your balance off in full every month?

Remember that interest rates are very important when choosing a credit card — so it’s really up to you to figure out if you’re capable of paying your balance off every month. Of course, if you do choose to not pay your balance in full each month, make sure you know about the APR that will apply to any new purchases!

Can late fees be waived?

As with annual fees, late payment fees can be a big deal. If you’re going to carry a balance on your card from month to month, these fees can add up quickly — so it’s important that you have the option of waiving them if something comes up.

If there is a 0% introductory APR, and how long does it last?

Credit cards with 0% introductory APRs usually come with an expiration date on the 0% APR period, which can be a maximum of 18 months. In this case, it basically means you have up to a year and a half to pay off the card before any interest is applied (which is great if you want to make large purchases).

If choosing a 0% introductory APR credit card, make sure you know how long this introductory period is, and what the APR will be after this period. Ensure you have completely paid off your credit card at the end of this introductory period so that you don’t get hammered with big interest rates when you least expect it!

Can you choose the due date on your credit card?

If you are someone who is most likely to have big purchases come up at the end of the month, being able to set your credit card due date to be near the beginning of each month can help prevent overspending.

Can you lower the interest rate over time?

Some credit cards allow you to lower your interest rate over time by paying off part or all of your credit card at a time. If you’re a relatively responsible credit card user, this could be a good choice for you.

Is there an introductory bonus?

Some cards have great sign-up bonuses! Most often, these come in the form of cashback or points that can be redeemed for travel. If you will use your credit card enough (responsibly!) to take advantage of the bonus, it’s almost always worth signing up for it.

How much do they charge for cash advances?

Cash advances are a big deal. Usually, credit cards will charge you a fee of 3% to 5% of what you withdraw — so be sure to keep this in mind when looking at the costs of your new card.

You now have the knowledge on how to pick the right credit card for you, so let’s take a look at how to get it, and use it to your advantage.

How do you get your first credit card?

Getting your first credit card can be a bit of a daunting task, as it’s the first time you will have to interact with lenders.

What’s most important is that you don’t rush into getting a card just because everyone else has one. If you only care about owning a shiny piece of plastic, then go for it! However, if you’re looking for something that’s going to help your long-term goals and isn’t too expensive, you can usually apply for most credit cards online. 

You’ll need your ID, and some proof of your income, and it should only take about 15 minutes to be approved, assuming everything is in order.

If you’d like to read more about picking the right credit card, check out our article How to Choose Your Perfect Credit Card.

Understanding Credit Card Debt

Credit card debt can confuse the best of us. That’s largely because credit card companies don’t make it easy to figure out how credit card debt works — in fact, it’s in their best interests to keep it a bit complicated. The less you know about credit card debt, the less you will worry about it, and the more you will spend. The more you spend on their credit cards, the more interest they can charge you.

So let’s put an end to that, shall we? Let’s demystify everything about how credit card debt works.

How does credit card interest work?

The simple answer is that if you owe money on your credit card, you will pay your APR (let’s say 15%) as interest on that outstanding amount.

The not-so-simple answer is that it’s actually kinda complicated. But that doesn’t mean we can’t work it out! Let’s try to break it down to its simplest parts, so you know how much credit card interest you are being charged.

Work out your credit card’s daily APR/daily periodic rate

The first thing you need to do is find your credit card’s daily APR, or daily periodic rate, which is the annual percentage rate of your interest, converted into a daily interest rate.

If your APR is 15%, divide 0.15 by 365, which equals 0.00041. So your daily APR/daily periodic rate is 0.00041.

Work out your credit card’s daily average balance

Unfortunately, your credit card company is unlikely to tell you what your daily average balance is, so you’ll have to go through your statement to work it out yourself.

To do this, go through your last month’s credit card statement, and add each charge and subtract each payment as they appear on your statement. When you have a total for the month, divide this number by the number of days in that month.

So if the total is $30,000, and there were 30 days in that month, your daily average balance would be $30,000 divided by 30, which is $1,000.

Use those numbers to work out your interest for the month

Using our numbers as an example:

Multiply your daily APR/daily periodic rate (0.00041) by your daily average balance ($1,000) which is $0.41, or 41 cents.

Finally, take that number ($0.41) and multiply it by the number of days in that month/billing cycle (30), which is $12.30.

You’ve now worked out that you paid $12.30 in interest for that month.

A lot of credit card companies will compound their interest, which means they will multiply your daily periodic rate by your daily average balance, and add that number to the next day’s daily average balance.

Over a long period of time, this will make a big difference to the amount of interest you are charged. However, if you pay your credit card off mostly, or in full each month, it won’t make too much difference. All the more reason to pay off your credit card each month!

How to read your credit card statement

If you’ve ever had bad credit, you’ll be familiar with the overwhelming sensation of dread about opening your credit card bill — after all, it’s a wall of numbers and it can make you feel pretty bad about what you owe.

We can’t help too much about feeling bad about what you owe, but we can help with understanding what your credit card statement means.

Here are the terms to look out for:

  • Your current balance — This is the amount of money you have borrowed, and now owe the credit card company
  • APR/interest rate — This is the percentage the credit card company is charging you to borrow money. If you have an outstanding balance (you owe them money), this is the percentage they are charging you of that amount.
  • Minimum monthly payment — This is the lowest amount of money you can pay to keep your credit card and avoid penalty charges. It’s usually the least amount out of all your different debts. Always try and pay more than the minimum monthly payment to avoid paying more interest than you need to.
  • Compound/interest on purchases — If you don’t pay off your entire balance each month, this means that the APR will be applied to any new purchases too.

What is credit card principal vs interest?

The principal is the amount of money you borrow, usually represented by “balance” on your credit card statement, whereas interest is the percentage fee or interest charged to borrow that principal.

The balance due is the principal plus the interest amount.

Credit Card Payoff Calculator

Once you know your principal, interest, and balance due, you can plug that into our credit card payoff calculator to see how much you can save by making just one small extra payment each month.

Total Principal Paid


Total Interest Paid


Monthly Payment


Months to Payoff


% Principal


% Interest


Let’s make an example. Let’s say this is your scenario:

  • Principal: $2,000
  • Interest rate: 15%
  • Minimum monthly payment: $45

If you were to just pay off the minimum monthly payment each month, here’s what it would look like:

  • It would take you six years to pay your balance.
  • You would pay $937.61 in interest fees. 
  • 68.1% of your payments pay down the principal.
  • 31.9% of your payments will be interest fees.

So what would happen if you paid just $5 more each month? Well, it would look like this:

  • It would take you five years to pay your balance.
  • You would pay $789.93 in interest fees. 

So just that extra $5 a month saved you a whole year and nearly $800 in interest!

The benefits of paying down a bit extra on your credit card principal are many:

You will pay less in interest: You can save hundreds or thousands of dollars by paying down the principal because you are paying less interest over time.

You will have it paid off before you know it: In the scenario above, we showed that just $5 extra in payments per month will take a year off the loan. Use the credit card repayment calculator to see how much time you can take off your loan.

You will be able to negotiate a better interest rate: Credit card companies usually like active, paying customers — you can use that to your advantage when negotiating for a better rate.

You are winning the credit card game: You are being financially savvy by paying down your debt faster and beating the credit cards at their own game.

So what are you waiting for? Why not start paying down your principal today? The sooner, the better. Why let your credit card company win when you can win instead?

Use the credit card payoff calculator to play around and see how much extra you can afford to pay off each month, and how much time and money it will save you in the long run. Along with paying your credit card on time, this is the number one way to save money on credit card interest!

If you’d like to know more about paying down credit cards sooner, check out our article How to Use the Credit Card Payoff Calculator.

How do you use your credit card to build credit?

Your credit score is not an indication of who you are as a person, but it does tell a lot about how well you manage your money. So then, it’s pretty important to build a good credit history in order to build a good credit score.

A lot of people don’t understand how hard it actually is to build credit, without an extremely reputable co-signer. Most people under the age of 21 do not have what most lenders consider a “good” or “established” credit score. This means that for many things, like financing cars and buying houses, they simply cannot be done on their own, since they can’t borrow money from most traditional sources.

It’s not just college students either — a lot of grown adults have poor credit scores due to a range of things, whether it be student loans, medical debt, or just some poor purchasing decisions. In fact, half of all Americans have a credit score below 698, so if you have a bad credit history, you are far from alone.

Just having a credit card will help your credit score, but if you really want to improve your credit score, it’s important to use it responsibly. Here are some tips on how to make a credit card work for you by building your credit score.

Make your payments on time, every time

This is without a doubt, the most important thing to do when you own a credit card. To give you an idea of just how important prompt payments are, a single missed credit card can lower your credit score by over 80 points!

Set a reminder on your phone to pay at least 2 days before the due date, this way you have some wiggle room in case something comes up and you can’t make your payment in time.

Do not max out your card!

All of a sudden you have thousands of dollars in your pocket, and so the temptation to spend it all is super-tempting. However, if you max out your card, you are raising your credit utilization, which is a measure of how much of your credit you are using.

For example, if you have a credit card with a $10,000 limit, and owe $7,000 on it — this is quite high. It’s recommended to keep your utilization under 30% of your available balance.

Keep all of your credit card accounts open

We’ve talked a bit about spending responsibly with your credit card, so this advice might sound a bit odd. But in reality, if you leave your unused credit card accounts open, you improve your credit utilization as we talked about above.

Let’s say you have three cards, each with a $1,000 limit. If you cancel two of the cards, you are removing one-third of your available credit, which will in turn increase your credit utilization. Keep your unused credit cards open, but don’t use them — in time it will help with your credit score.

Spend sensibly

Okay, this sounds obvious, but what does sensible credit card spending actually look like? Well, it means spending on things that you know you can pay off fully by the end of the month, to avoid interest costs and bad credit.

Use your credit card to pay for your regular or fixed expenses, like gas, Netflix, and groceries. This way you know you can pay each month off with ease. As for the big stuff you are tempted to buy, you’ll know exactly how much you have leftover to save for it!

Always pay more than the minimum!

When it comes to paying off your credit card, never just pay the minimum. This is an easy trap to fall into and can lead to months or even years of interest fees adding up — costing you a lot more than you initially spent on the item.

If you’re only making the minimum payments on your credit card, you need to cut back and find a way to pay more than just the minimum. This can be done by increasing your payments each month or cutting down on unnecessary spending that’s only adding to your debt.

Credit cards can be used to empower your financial future, you just have to have the discipline to work to your advantage. Start small, spend small, and pay your outstanding balance off on time, each and every month — you’ll have an excellent credit score in no time! If you’d like to read more, check out our article Building Credit with a Credit Card.

If you have any questions regarding any of the solutions we’ve discussed, please do not hesitate to contact us — we are committed to assisting people in repairing their credit and establishing a better financial life. Get started today, you will never regret it.

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