Credit Cards 101 (Credit Card Basics 1/3)

Summary

The video introduces Jasmine, a college student navigating the world of debit and credit. It explains how credit cards can be beneficial if used responsibly, allowing users like Jasmine to earn rewards such as cash back while building a strong credit score. Although credit cards come with risks, including high interest rates if balances aren't paid off, they can be a valuable financial tool. The video also highlights options for students to obtain credit cards, including student credit cards and becoming authorized users on family accounts. Viewers are encouraged to learn more about credit scores in the next video.

Takeaways

• 😀 Understand the difference between debit and credit: Debit comes directly from your bank account, while credit is borrowed money from the bank.
• 💳 Credit cards can incur interest: If you don’t pay off your balance by the due date, you will be charged interest on the remaining amount.
• 🚨 High annual percentage rates (APRs) can make debt expensive: Be cautious with credit card usage to avoid accumulating debt quickly.
• 💸 Pay your balance in full: By paying off your credit card balance every month, you can avoid paying any interest.
• 🎁 Credit card rewards can be beneficial: Many credit cards offer cashback or points for purchases, effectively giving you 'free money' if used responsibly.
• 📈 Responsible credit usage builds credit history: Using a credit card wisely can help improve your credit score, which is important for future loans.
• 👩‍🎓 Student credit cards are accessible: Full-time students can apply for student credit cards even with limited credit history and income.
• ⚠️ Be cautious with co-signers: If you choose to have a co-signer, remember that both parties are responsible for the payments.
• 📝 Becoming an authorized user can help build credit: Being added to a family member's credit card can allow you to establish credit without direct responsibility for payments.
• 🔍 Continuous education on credit is key: Stay informed about credit management and regularly check your credit score to understand your financial position.

Q & A

What types of money can Jasmine use to pay for her expenses?

Jasmine can use either debit or credit to pay for her expenses.

What is the difference between debit and credit?

Debit comes from Jasmine's personal bank account, while credit is money lent to her by the bank.

What happens when Jasmine uses her credit card to make a purchase?

When Jasmine uses her credit card, her bank loans her the money for the purchase.

What is interest, and how does it relate to credit cards?

Interest is the amount of money charged by the bank each month if Jasmine doesn't pay off her credit card balance by the due date.

How can Jasmine avoid paying interest on her credit card?

Jasmine can avoid paying interest by paying off her credit card balance in full by the monthly due date.

What rewards do credit cards typically offer?

Most credit cards offer rewards such as cash back or airline miles for each purchase made.

What is a credit score, and why is it important?

A credit score is a calculated number between 300 and 850 that summarizes a person's credit history. It's important because many lenders require a minimum score to approve loans.

What are the typical requirements for obtaining a credit card?

Most credit cards require a credit score of at least 600, an annual income of at least $15,000, and a reasonable debt-to-income ratio, generally below 36%.

What is a student credit card, and who can apply for one?

A student credit card is designed for college students. Jasmine can apply if she is a full-time student, at least 18 years old, and has either a small income or a creditworthy co-signer.

What are the implications of taking on a co-signer for a credit card?

If Jasmine takes on a co-signer, both she and her co-signer are liable for any credit mistakes, including missed payments.

How can Jasmine build her credit if she's not ready for her own credit card?

Jasmine can be added as an authorized user on a family member's credit card, which will help her build credit history based on her parent's credit score.