With so many different kinds of payment methods available, you need to find the best kind that suits your needs. One of the more complex types of cards is credit cards. When you buy anything with a credit card, that transaction is charged onto your account. This makes up your “credit statement,” the value that you need to pay to your bank each month. The value of your credit statement is equal to the total amount that you spend on the card, which adds up until paid. This total is not charged interest. If you don’t pay your credit statement each month, there are penalties against you. If you are late to pay your credit statement by even one day, then you will be charged a late fee on your account, the amount depending on your credit bureau. The longer you wait to pay your balance, the bigger the fees and penalties get. If you still don’t end up paying your credit statement, you will be reported to the credit bureaus, who will put a derogatory remark on your account called a charge-off. When banks and finance offices look at your credit report, they will see this remark, and if you pay this charge-off, it will show as a “paid charge-off,” which will not hurt your credit score as much as an “unpaid charge-off”.

A credit score is a three-digit number from the ranges of 300 to 850 that represents your accountability to pay bills, loans, and credit statements on time. This number will be checked any time you apply for a loan, financial aid, a new credit card, or anything that comes from the bank. A higher credit score does not guarantee your chances of getting a bigger loan or better credit account, but it will let banks know that you are responsible with your spending. A score of 300 to 579 is considered “poor,” 580 to 669 is “fair,” 670 to 739 is “good,” 740 to 799 is “very good” and 800 to 850 is “excellent”. Technically, everyone has three different credit scores that are scored by three different consumer reporting agencies. Your banking or credit agency chooses who to send scores to, which is usually Equifax, TransUnion and Experian. They can choose to send them to all three, only two or just one of them.

Although it sounds like credit cards are a big waste of money and time, they pose many benefits. There are many types of credit cards, ranging from beginner level all the way to airline or even business cards, such as the American Express Centurion Card. When you start your credit card journey, banks will give you a beginner-level credit card that allows you to build credit easily and safely with less risks. A beginner credit card will have a lower maximum limit to ensure that you are able to pay back your statement, no annual fees and small rewards like sign-up bonuses and points. Once you build credit and let the bank know that you are responsible with your money, they might upgrade you to a better card that offers better rewards like a higher maximum limit, bigger sign-up bonuses and sometimes even monthly subscriptions or access to airport lounges and discounted airfare. If you have enough credit built up, you can apply for high-level credit cards that will charge an annual fee, but allow you to gain miles, cash-back and gas points on every purchase with the card. These bonuses come at a hefty price, but can be worth it depending on the person and how they live their life. Building credit is a lengthy process, so it is important to start as soon as you can, but make sure that you are building credit, not breaking it.