Sephora Credit Card Now Available (4% Rewards At Sephora)

In March it was announced that Sephora would be launching co-branded credit cards with Alliance Data. Those cards have now launched and are available for sign up. Currently there are three cards available:

  • Sephora Credit Card (store card)
  • Sephora Visa® Credit Card (and Visa signature)

Card Benefits

  • Card earns at the following rates:
    • 4% back in rewards on purchases at Sephora
    • 1% back in rewards on purchases outside Sephora (Visa cards only)
  • 15% off your first card purchase at Sephora
  • $20 Sephora credit card reward after you spend $500 outside Sephora within the first 90 days (Visa cards only)

Our Verdict

Overall this card is fairly basic, the 4% back in rewards on Sephora purchases is nice but using the card outside Sephora doesn’t make any sense at all because other cards earn 2%+ cash back on all purchases. I guess if you spend a huge amount of money at Sephora signing up for this card could make sense, but realistically you will be better off signing up for a card with a large sign up bonus instead.

Source: doctorofcredit.com

How is credit card interest calculated?

How is Credit Card Interest Calculated

If you’re like most people repairing their credit card debt, your credit card’s annual interest rate is a mystery to you. You might even avoid thinking about it or looking at it, because it’s such a large number. Interest rates can make it difficult to get out of debt quickly, because you’re working against a large percentage—as much as 16% or even 20% annual interest.

Credit card interest is calculated using a complicated formula that can be confusing to many people. So it often remains a puzzle to borrowers. But it’s important to understand the basics of credit card interest, because it will help you to repair your credit card debt quicker—and to be a smarter credit card user. Here’s how credit card interest works.

How Is Credit Card Interest Calculated?

credit card interest calculation

If you’ve watched your interest rate closely, you may have noticed that it has changed since you first opened your credit card. Many credit cards offer a low introductory interest rate that increases after the period is over. But even after that, your annual interest rate will often go up and down. That can be confusing, and even a bit unsettling.

Your interest rate changes

The first thing you should understand is that your credit card uses a variable interest rate. That means that the interest rate can change over time. A variable rate is tied to a base index—usually the U.S. prime rate. As the U.S. prime rate goes up or down, so will your credit card’s interest rate.

Right now, the U.S. prime rate is 4.25%. But your credit card’s interest rate is probably closer to 18.25%, or even more. That’s because credit card companies charge an additional amount above the U.S. prime rate—perhaps 14%, but it varies from card to card. So your total interest rate will be closer to 18.25%, annually. If the U.S. prime rate raises or lowers, your annual interest rate will also go up or down by the same amount.

The factors that influence the U.S. prime rate are reviewed every six weeks. The prime rate could stay the same for years, or it could change every six weeks. It all depends on current federal economic conditions and forecasts.

Your interest rate is annual

It’s also important to understand that your credit card’s interest rate is an annual rate. So if your annual rate is 18.25%, that amount is applied per year—not per month. But since you’re billed monthly, your interest is calculated each month, using an average daily balance method.

Calculating your interest rate

Here’s how the average daily balance works:

  1. Determine the daily periodic rate (DPR)—the interest rate you pay each day. DPR is your current interest rate (it varies, remember) divided by 365. So, 18.25 / 365 = 0.05%.
  2. Determine the average daily balance for the month. This is done by adding up the balance for each day of the billing period, then dividing that sum by the number of days (either 30 or 31 days—or 28 in February!). If you had a balance of $0.00 for 10 days, then $500.00 for 10 days, then $1000.00 for the last 10 days of the month, your average daily balance would be $500.00.
  3. Multiply the DPR by the number of days in the billing cycle, then multiply that total by the average daily balance. This is your interest for the month. So, a DPR of 0.05% * 30 days = 1.5%. 1.5% * $500.00 = $7.50.

That might not sound like much, but if you’re an average cardholder in the United States, you’re carrying a credit card debt of $16,000.00. That means you’re paying $2,880.00 per year in interest alone, in this scenario.

How Can I Avoid Paying So Much Interest?

When you’re working hard to repair your credit card debt, it can be frustrating to be fighting against a high interest rate. But there are ways you can reduce—or even eliminate—the amount of credit card interest you’re paying each month.

Pay more than the minimum balance due

Your credit card statement lists a minimum amount that you must pay each month. Your interest for the month is rolled into that minimum payment. But if you pay more than the minimum, every dollar above that minimum goes towards your principal balance. There’s no interest charged on it.

In other words, if your minimum payment is $500.00 and you pay $600.00, that extra $100.00 is applied to the amount you borrowed—it’s interest-free. And that benefits you in two ways:

  • You’re paying off debt without paying interest
  • You’re lowering the dollar amount of interest you’ll have to pay next month, because your average daily balance will be smaller.

Open a balance-transfer credit card

credit card interest

A balance-transfer card can be a very helpful way to repair your credit card debt. A transfer credit card has a very low introductory interest rate—often as low as 0%. The card lets you transfer your balance from other debt onto the new card. You can then make monthly payments on the transfer card to pay down your existing debt.

But the low interest rate is only valid for a limited time—usually six to 18 months—so you’ll need to pay off the debt before the introductory rate expires. You should also do your homework: some transfer cards charge a transfer fee. And some charge a penalty APR, which allows the credit company to charge you a high interest rate if you miss a payment.

Pay off Your Credit Card Debt Faster

Your credit card’s annual interest rate doesn’t have to be a confusing mystery, and you don’t need to know everything there is to know about interest rates. But when you understand the basics of variable interest rates and how they’re calculated, you can use that information to repair your credit card debt faster and easier. Paying more than the minimum balance due and using a balance-transfer card can be very helpful ways to use interest rates to your advantage.


A reputable credit repair specialist can help you find other ways to successfully get out of credit debt. If you’re tired of struggling on your own, find out how our advisors can help you repair your credit debt. Contact us today.

Carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

Source: lexingtonlaw.com

15 types of credit cards

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Whether you’re a seasoned cardholder or a first-timer, you may be surprised at how many types of credit cards are available. Depending on your credit score and the length of your credit history, you may not be able to qualify for the ones with the most favorable terms and lowest interest rates. But chances are, there’s a card that fits your needs and—if used responsibly—may help you build credit.

Broadly speaking, there are four different types of credit card categories:

  1. Cards That Help Build Credit
  2. Cards That Can Save You Money
  3. Cards That Offer Cash Back and Rewards
  4. Cards for People With Bad Credit

Here, we’ll break down each category, discuss the specific card types and explain each one’s unique benefits so that you can make the most of your card.

Cards That Help Build Credit

If you’re new to the world of credit, you may be wondering how to build credit quickly, without going into debt. If you’re in college, you may have the added load of student debt. When you’re just starting out, it’s important to find a card that’s right for you and manage it carefully to start your credit health out on the right foot. You may even be able to earn some rewards along the way.

Cardholders ages 18 – 22 have an average credit score of 672.

1. Student Credit Cards

Student credit cards operate exactly the same way that standard credit cards do. The main difference is that their total credit limits tend to be lower. Additionally, since they are marketed toward students who likely don’t have much of a credit history, the requirements for approval are typically more lenient. 

Benefit: Some student cards offer incentives for good grades, like a small cash reward for each school year that you earn a GPA of 3.0 or higher.

Example: Discover it® Student Cash Back

2. Starter Credit Cards

Starter credit cards are designed for those with little to no credit history. Consider getting one if you’ve never had a line of credit, or if you have one that hasn’t been open very long. These cards typically don’t offer great rewards programs or cash-back incentives, and they come with high interest rates. However, if you can find one with no annual fee, it can be a great option to begin building credit.

Benefit: Establish your credit and build a solid payment history with this type of credit card, which is generally easy to qualify for.

Example: Capital One Platinum® Credit Card

3. Joint Credit Cards

Unlike authorized user credit cards, joint credit cards require both parties to apply together. Both parties are equally responsible for paying the balance. Therefore, late or missed payments may ding both credit scores—while consistent, on-time payments will benefit both scores. 

Benefit: If a person doesn’t have a high enough credit score to qualify for a good credit card, they may consider applying with their partner for a joint credit card with more favorable terms.

Example: Bank of America® Cash Rewards Credit Card

Cards That Can Save You Money

Sometimes applying for a credit card is a strategic move. Maybe you want to transfer your balance to a card with a lower interest rate, avoid paying interest for an introductory period or customize features for your business. These cards can help you save money—your way.

Approximately 74% of credit cards have no annual fee.

4. Zero Percent Purchase APR Credit Cards

Sometimes cards will offer temporarily lower APRs for an introductory period. Cards that boast zero percent APR don’t require you to pay interest on new purchases for a set amount of time, usually about 12 months. 

Benefit: Save money on interest by borrowing money essentially for free. Just make sure to pay off your balance by the time your introductory period is over to avoid interest charges.

Example: U.S. Bank Visa® Platinum Card

5. No Annual Fee Credit Cards

Many credit cards charge annual fees for the convenience of having the card and for the benefits and rewards they offer. Depending on how elite the card is, these fees can be up to $450 or more. However, almost three-fourths of cards offer no annual fee—and many of these still come with decent cash back programs. Scan your credit card offer or the terms and conditions to make sure your card has no annual fee. 

Benefit: Save an average of $58 each year by avoiding unnecessary annual credit card fees.

Example: Citi® Double Cash Card

6. Balance Transfer Credit Cards

Similar to zero percent purchase APR credit cards, balance transfer cards offer temporarily low introductory rates—but specifically for balance transfers. This is a great option for those who want to save money on a high-interest credit card. Rather than closing the unfavorable card—which may lower your credit score—a balance transfer may be a better option.

Benefit: Avoid paying hefty amounts of interest by transferring your balance to a card with a much lower introductory rate. 

Example: Wells Fargo Platinum Card

7. Business Credit Cards

If you’re a business owner, you may want to apply for a credit card specifically for business use. This will help you separate personal and business expenses, and the rewards may help your business save money. You’ll then begin to build business credit. To apply you’ll need decent credit and either a federal tax ID or employer identification number (EIN).

Benefit: Enjoy business-specific perks like higher credit limits, expense management reports and the ability to add more cards for employees. 

Example: Costco Anywhere Visa® Business Card by Citi

Cards That Offer Cash Back and Rewards

In order to get the most out of their spending, most cardholders gravitate toward credit options that offer cash back and rewards. 

Cardholders carry an average of 4.1 cards, 2.4 of which are rewards-based.

8. Cash Back Credit Cards

Cash back credit cards allow you to earn a certain percent—typically ranging from one to five—of the money back every time you make a purchase with the card. Some issuers will pay this amount annually, while others pay monthly.

Benefit: Find a card that allows you to customize where you get your cash back. For example, certain cards allow you to earn five percent cash back in a store category of your choice.

Example: Chase Freedom Unlimited®

9. Retail Credit Cards

Retail or store credit cards are offered by specific businesses and can only be used to make purchases with that store. While these cards aren’t ideal for everyday purchasing needs, they’re a great way to earn generous rewards with stores that you frequently shop at. There are over 300 store credit cards available, from Walmart and Target to Lowe’s and JCPenney. 

Benefit: Store cards typically don’t charge annual fees, don’t require excellent credit and offer substantial first-purchase discounts as well as long-term cash back rewards.

Example: Amazon Prime Store Card

10. Hotel Credit Cards

Hotel credit cards are affiliated with a specific hotel chain and offer rewards on a “points” basis. Typically, they’ll offer some points for purchases made at unrelated businesses such as grocery stores, gas stations and restaurants. But the main attraction is the bonus points earned on eligible purchases made directly with the hotel. 

Benefit: Earn generous sign-up bonuses, rewards when you spend money on hotel bookings and yearly free nights. 

Example: Hilton Honors American Express Surpass® Card

11. Airline Credit Cards

Certain credit cards offer rewards on purchases made with a specific airline, while others allow you to earn rewards with any airline or travel-related expense. These rewards rack up in the form of “miles.” For example, many cards offer two miles for every one dollar spent on flights. 

Benefit: For frequent travelers, airline credit cards are a great way to score free and discounted flights.

Example: Delta SkyMiles® Gold American Express Card

12. Gas Rewards Credit Cards

Not to be confused with gas station credit cards—which operate like retail cards—a gas station rewards card offers cash back when you pay at the pump. It can be used anywhere, but you’ll enjoy bonus rewards at gas stations.

Benefit: Earn up to three to five percent cash back on gas purchases, often with no annual fee and a zero percent introductory APR. 

Example: PenFed Platinum Rewards Visa Signature® Card

13. Charge Cards

Charge cards operate in exactly the same manner as regular credit cards, except for one major caveat: you must completely pay off the total balance each month. Failure to do so results in late fees and penalties and will cause a drop in your credit score. On the flip side, they typically come with sizable initial bonuses and rewards.

Benefit: Enjoy higher credit limits and generous point systems—oftentimes offering up to five points per one dollar spent.

Example: ThePlatinum Card® from American Express

Cards for People With Bad Credit

If you’re struggling to get approved for credit cards, loans or other lines of credit because of bad credit, don’t be discouraged. There are credit cards with terms designed specifically for those with poor credit. 

Approximately 12% of Americans have a FICO score below 550.

14. Secured Credit Cards

Most credit cards are unsecured. This means that you are not required to put up a security deposit. Secured cards, on the other hand, require an up-front payment to act as collateral in the event that you can’t pay your balance. Credit card issuers see borrowers with bad credit scores as riskier, so this deposit helps mitigate some of that risk. 

Benefit: Secured cards give borrowers with poor credit access to credit when they otherwise wouldn’t be able to qualify for a card.

Example: Capital One® Secured Mastercard®

15. Prepaid Cards

Prepaid cards aren’t technically credit cards, because they don’t involve borrowing money. Instead, a cardholder loads a set amount of money onto the card, and purchases are subtracted from the card’s balance, similar to a gift card. The spending limit then renews if and when the card is reloaded. 

Benefit: Prepaid cards help you stay within a budget and avoid getting into credit card debt.

Example: American Express Serve® FREE Reloads

What Type of Credit Card Is Best?

Ultimately, the decision for which card to get is up to your personal preferences and financial goals. However, there are a few good rules of thumb when looking for the best credit cards. Remember to read the terms and conditions carefully before signing up. Generally, cards with any of the following perks may be worth pursuing:

  • Zero percent introductory APR
  • Low APR after the introductory period
  • Sign-up bonus
  • Solid rewards or cash-back program
  • No annual fee

All of the different types of credit cards may seem daunting at first, but once you understand the unique benefits of each one, you’ll be able to find a card that fits your needs. Remember that—regardless of credit card type—good credit management is the key to keeping your credit healthy. After years of on-time payments, low credit utilization, a good mix of credit and few hard inquiries, you’ll be well on your way to your best score yet.


Reviewed by Kenton Arbon, an Associate Attorney at Lexington Law Firm. Written by Lexington Law.

Kenton Arbon is an Associate Attorney in the Arizona office. Mr. Arbon was born in Bakersfield, California, and grew up in the Northwest. He earned his B.A. in Business Administration, Human Resources Management, while working as an Oregon State Trooper. His interest in the law lead him to relocate to Arizona, attend law school, and graduate from Arizona State College of Law in 2017. Since graduating from law school, Mr. Arbon has worked in multiple compliance domains including anti-money laundering, Medicare Part D, contracts, and debt negotiation. Mr. Arbon is licensed to practice law in Arizona. He is located in the Phoenix office.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Source: lexingtonlaw.com

Should You Get a Secured Credit Card?

Using a Secured Credit CardUsing a Secured Credit CardA credit card is a perfect tool for consumers who love to buy now and pay later. So many types of credit cards exist, so it is important for consumers to explore all of the available options before making a decision.

Of course, with certain products designed for consumers of a certain profile, there are obvious choices, and a secured credit card is one.

What is a Secured Credit Card?

A secured credit card is a credit card that requires the cardholder to pay a refundable deposit.  This deposit, which is typically equal to the amount of credit, is used as collateral to ensure the account is paid. If the cardholder does not pay the balance due, the deposit will not be refunded and the account will be closed.

If the cardholder exhibits that they can properly manage a credit account and make an on-time payment every month, they may be able to apply for a traditional or an unsecured credit card account and get their deposit refunded for the secured credit card.

Should You Get a Secured Credit Card?

Secured credit cards can benefit any consumer, but it can be especially helpful to consumers with poor or bad credit and consumers with no credit. When people seek credit, they will be expected to have a certain credit score because this score will show lenders and creditors how much of a risk that person is and if they should be approved for credit. Creditors basically see it as the lower score, the higher the risk.

Secured credit cards have two major benefits for consumers:

  • Improves credit score: Cardholders will have their monthly payments reported to the credit bureaus, and on-time payments often result in an increased credit score.
  • Establishes credit history: A credit account listed on a credit report helps establish a credit history, which is important for people who want to improve their chances of being approved any type of credit in the future.

Over time, consumers can easily build/rebuild their credit and improve their score. Rather than having low odds of approval because they are seen as a risk, consumers will have higher odds of approval in the future when credit is needed, like when they want to purchase a home or even open another credit card account.

How Do I Get a Secured Credit Card?

Consumers interested in a secured credit card need to determine which secured credit card to apply for before they just start filling out applications.

When choosing a secured credit card, consumers should consider:

  • Credit limit
  • Minimum deposit amount
  • Fees( Annual fee, late fee, etc.)
  • Interest rate

An application will then need to be filled out. The application will require the applicant to provide personal information about their finances.  Following the review of the application, and a credit check, the application will be denied or approved. The process of obtaining a secured credit is similar to the process of obtaining an unsecured credit card, but there is one key difference: the deposit.

If approved, the applicant will then pay the requested deposit amount. As stated above, the deposit will typically be equal to the credit limit. For example, if a cardholder would like a credit limit of $300, their deposit will need to be $300. A higher limit will require a larger deposit from the cardholder.

When trying to decide if a secured credit card is the best option, consumers have a lot to review, but they can’t deny how it will help their credit in the long run. Credit cards can be used to pay bills, buy gas, see a movie and much more, but when someone’s credit score isn’t where it should be, a traditional credit card may not be an option.  With a secured credit card, people can gain access to the credit they need and have an efficient tool that will help them build their credit.

Need help finding the right secured credit card or have questions about rebuilding your credit? Call Credit Absolute today to schedule your free financial consultation!

Source: creditabsolute.com

How Do Secured Credit Cards Work?

Secured credit cards are an amazing tool used to rebuild or establish credit for those who are looking to set themselves up for a healthy financial future. Here is what we will quickly discuss about secured credit cards to make sure you are educated when you walk into your bank and the over-eager banker behind the desk, hands you a packet of credit card options that they know are just perfect for you.

  • What is a secured credit card?
  • What kind of deposit is required on a secured credit card?
  • How will a secured credit card help my credit in the future?

What is a Secured Credit Card?

Credit CardsCredit CardsTo begin, a secured credit card is just that, secured. This means it is a type of debt that is secured or held by money that the borrower (you) has put down. This typically looks like a small deposit that you put down upfront that becomes your new credit limit.

For example, when applying for a traditional (unsecured) credit card, the institution runs your credit and determines they will give you a $1000 limit on your card. You do not provide them with this $1000, but it is yours to borrow up to each month as your spending limit on your card. With a secured card, however, you typically will provide this money upfront, and the institution then uses this as your limit.

This puts the lender (the bank or institution) in a more secure position. If you don’t pay your bill, for example, then they would keep that deposit, and it provides much less risk to them. This is why secured cards are used for people with no credit or “bad” credit, as an alternative to a traditional credit card.

Deposit Needed to Open a Secured Card

So, you may be wondering, what kind of deposit would be required on a secured credit card? The short answer is, that it varies greatly by institution. However, a few of the most popular cards, namely Capital One, Discover, and First Progress range from $49-$2000.

Sometimes lenders will allow you to choose your deposit, others will give you a range and allow you to pick within that range. Typically they are around $200. It is important to remember, however, that these deposits do become your credit limit on the card. So, while choosing a very low limit at first may sound very enticing, it isn’t beneficial to choose a low limit only to spend 100% of your limit every single month you have the card.

How a Secured Card Can Help Improve Your Credit

The best part is, now that you know what a secured credit card is, and what kind of deposit is typical, you can start to see some benefits on that good old credit report. We all know that building or rebuilding credit is not something that happens overnight, but with a few small steps, you can get on the right track to setting yourself and your credit up for future success.

By paying off your secured credit card in full each month as well as making only a few small purchases on the card each month- you will start to see a boost in your credit in as little as one year.  At this point, you would be able to consider the options of applying for an unsecured credit card with a higher limit, and of course, continuing to build your credit over time.

Secured credit cards are the perfect option for people who are just starting to build or rebuild credit. Think of them as a credit card with training wheels. It provides you with a practice credit card with a lower limit, to get the hang of paying a credit card bill, spending within your limit, and checking your credit score. By establishing these habits, paying the card in full each month, and spending below your limit- you will be able to get approved for an unsecured credit card in no time.

Have questions about your credit score or need help building your credit?

Contact Credit Absolute for a free consultation!

Source: creditabsolute.com

The Pros & Cons of Credit Card Transfers

Transferring Credit Card DebtTransferring Credit Card DebtIf you are looking to save money and get out of debt faster, you may be looking into transferring a balance from a higher-interest credit card to one with a lower interest. It is important to note that while transferring a balance can be helpful in helping you, it can also turn a difficult financial situation into a worse one.

When thinking about it, a zero percent balance transfer is enticing. A few months with no interest? Yes, please. However, in some cases, it does more damage than good. Let’s take a look at both, the pros and the cons of a balance transfer.

Pros of a Credit Card Balance Transfer

Transfer Your Balance to a “Better Terms” Credit Card

By “terms”, we are talking about fees, rewards, grace periods, and the perks of the credit card. By transferring your balances from a bunch of cards with high fees and short grace periods to a card that has no fees or low fees and longer grace periods with better perks, you are winning.  You may even be able to get rewards for certain purchases, maximizing your money spent.

Lower Credit Card Interest Rate

If you currently have some high-interest rates on a bunch of credit cards, consolidating that debt into one with a lower interest rate is optimal. It will provide you with less interest accumulated from charges and hopefully, no finance charges. Most low-interest cards come along with a promotional “no interest” period and you may even be able to have the card paid off before that promo period is over.

Consolidation

Consolidating your credit card debt into fewer (or just one) payments rids of the stress and hassle of paying a bunch of different cards every month. The chances of possibly missing a payment go up also, as you have so many to pay. With just one card and payment, you are sure not to accidentally miss your monthly payment.

Cons of a Credit Card Balance Transfer

Balance Transfers Can Be Pricey

Transferring your balance from many credit cards over to one comes with a fee. This fee is called a balance transfer fee. Also, some of these cards that accept consolidation come with a hefty annual fee as well. It is important to factor in all of these fees to see if it is actually worth it to be consolidating your debt. If the interest you paid leaving your balances on the other cards was less than the new interest and fees, then you are in a good spot.

Balance Transfers Can Leave You With a Higher Interest Rate

In the event that you wind up not qualifying for the promotional advertised rate, you may wind up with an even higher rate than you already have. This is where credit comes in! If you have excellent credit, then you have a much better chance of qualifying.

Your Credit Score Can Be Negatively Impacted by a Balance Transfer

When you apply for and decide to open up a new account, this hinders your score. It goes on your credit report as an inquiry, which has a slight impact on your credit score. The bigger hit that you take is within the usage of credit. When you carry a balance of more than 30% of your credit limit, you risk your credit score going down. If the card that you choose to get to transfer all of your balances over to does not have a high enough limit to only be 30% used after all transfers are made, you will most likely feel the impact of a score drop.

Source: creditabsolute.com

Ways to Successfully Manage Your Credit Utilization Rate

Managing Credit UtilizationManaging Credit UtilizationWhen you think of your credit score, you may not consider how this number is calculated or how your actions play a role. Simply put, every credit score is made up of certain criteria, and each criteria can cause an increase or decrease in credit score. With credit utilization being one of the things that can impact your score, it may be time to learn how to manage your credit utilization.

In order to successfully manage your credit utilization rate, you’ll need to understand what it is and how it can negatively or positively impact your life. 

What is credit utilization rate and how is it calculated?

Credit utilization rate is a number used to compare the amount of debt you owe to the amount of credit you have available. By dividing the amount of credit that you use by the amount of credit available, you can determine your credit utilization rate. The more of your available credit you use the higher your credit utilization rate.

For example, if you have several credit cards, one with a credit limit of $500, one with a credit limit of $200, and another with a credit limit of $300, your total available revolving credit amount is $1,000. If you use $400 of the $1,000 of available credit, your credit utilization rate will be 40%. Whereas if you were to use $100 of your available credit, your credit utilization rate would be 10%.

Why does your credit utilization rate matter?

Credit utilization is one of the many factors that can affect your credit score. It actually makes up 30% of your FICO credit score, which means it is one of the most important factors that influence your credit score. Depending on the number, creditors and lenders may or may not approve your application. This is because your credit utilization rate is another way for creditors and lenders to measure your ability to manage your finances.

If you have $2,000 of revolving credit available to you between one or multiple credit cards, in order to keep your credit utilization at or below 30%, you’ll want to use no more than $600 if you don’t want to see your credit score drop significantly.

Managing your credit utilization

Since your credit utilization rate accounts for 30% of your credit score, you want to pay close attention to this number to ensure it doesn’t start to negatively impact your score. This is especially true when you want to improve your score to increase your chances of being approved for things that require good credit such as applying for a home loan or apartment.

You can successfully manage your credit utilization rate by:

  • Increasing your credit card limit
  • Paying your credit balance in full instead of just the minimum balance
  • Keeping credit accounts open even when there is little to no use
  • Pay down debts
  • Actively monitor your credit usage

Keep in mind that the goal of managing your credit utilization rate is to keep it at 30% or less. This doesn’t mean that you have to completely stop accessing your revolving credit, but you want to do so responsibly if you don’t want to see your credit score suffer.

For credit repair assistance and financial advice, contact Credit Absolute today for a free consultation!

Source: creditabsolute.com

How Old Do You Have to Be to Get a Credit Card?

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

To open your own credit card, you must be at least 18 years old. A common misconception is that the minimum age requirement varies by state, but this is not the case. Opening a credit card at a young age can seem overwhelming, but understanding the steps and benefits of doing so will help you through the process.

Can You Get a Credit Card Under the Age of 18?

While 18 is the minimum age to be the primary holder of a credit card, there is a way that those under 18 can still use one—a parent or guardian can make their child an authorized user on their credit card account. An authorized user is an individual who can use a credit card without being responsible for the bill, and you’ll need to submit a request to the credit card company to add your child as a user.

Also note that some credit card companies issue a minimum age requirement for authorized users, while others do not.

By doing so, you give your child a head start in building credit for themselves. This will become useful when your child is ready to qualify for a loan or apply for their own credit card. Becoming an authorized user will also help them establish healthy credit practices early on. Make sure your child knows how to properly use their card, because as the primary cardholder, you’re still responsible for the bills.

How to Apply for a Credit Card as a Teenager

Applying for a credit card as a teenager is a similar process to that of an adult, but with a few exceptions. To get a credit card, you must initially apply. Based on your credit history, credit score and personal financial information, you’ll be either approved or declined. As a parent, you can become a cosigner to help your child get approved for a card if they haven’t had much experience building credit yet.

Getting a Cosigner

A cosigner is someone that agrees to take responsibility if the primary cardholder can’t pay off their outstanding balance. Applying with a cosigner (presumably with good credit) can help you get approved and even a higher credit limit. Keep in mind that some credit companies don’t allow cosigners, so you may need to do a little research beforehand.

Best Credit Cards for Teenagers

With so many credit card options, it’s easy to feel lost when deciding which one to apply for. Consider applying for a card that is made for younger people and first-time credit applicants. These cards are designed for users that may not have a high stream of income or any preexisting credit. The following are a few cards that are popular for first-time credit applicants:

  • College credit card: These cards are designed for college students without experience in building credit. Since pursuing an education is often quite pricey, student debt makes it harder to get approved for a normal credit card. College credit cards typically offer users low fees, low interest rates and perks such as money back when using their card. Although it’s easier to get approved, you are still required to show proof of income and enrollment in school.
  • Secured card: This card requires an initial cash deposit in order to use the card. Think of it as a prepaid credit card. The amount of your cash deposit acts as your credit limit. As a result, secured cards typically also have higher interest rates than normal credit cards. Even with a cash deposit, all activity put on a secured credit card still impacts your credit score.
  • Store credit card: Some retailers also offer credit cards. While these cards are mainly for customers to shop at the specific store, the card can also be used for purchases elsewhere. These cards are easier to acquire since they often don’t require a specific credit score. Store credit cards intrigue customers by providing exclusive discounts and rewards, but beware as they often come with high interest rates.
3 options for first-time cardholders: college credit cards, secured cards, store credit cards.

Tips on Getting Approved

Getting approved for a credit card as a teenager can be difficult, since you likely don’t have significant preexisting credit or income. Both of these factors highly impact whether an applicant will get approved or denied for a card. The following are some tips on getting approved as a young user:

  • Take into consideration all forms of income. When your application asks for your income, you can include much more than just your income from a part-time job. You can also include student loans and parental allowance as income.
  • Consider getting a part-time job. Having a stable salary will show credit card companies that you have the ability to pay off your card.
  • Add a cosigner if your credit card allows you to. As mentioned above, this will help the company see that you have someone to rely on for your spending habits.
  • Apply for a card designed for young adults. College credit cards and secured cards are a few great ways to get started with building credit. Both cards are designed for those who may not have previous credit.

How to Build Credit at a Young Age

Building credit is always important since it takes time. Having good credit will open up more doors for you down the line. The time you dedicate to building your credit early will pay off when you’re applying for a loan, buying a car or making a big financial decision in the future.

When Is the Best Time to Build Credit?

The best time to build your credit is as early as possible. The length of your credit history impacts your credit score by 15 percent. By starting at an early age, your credit score will be positively impacted in this regard. As a general rule of thumb, seven years of credit history is ideal for building good credit. If you’re unsure about opening up a new line of credit, consider speaking to a financial advisor first.

Everyone’s financial situation is different, so it’s a good idea to know what will work best for you before getting started.

Best Practices When Building Credit

Building and keeping up good credit can be new for those who haven’t had much experience yet. The following are some best practices for doing so:

  • Apply for a credit card. You can’t build credit without a form of payment that affects your score. Do your research and find a card that you have a good chance of being approved for.
  • Be responsible with your spending habits. Having a credit card can positively impact your score if you use it responsibly. Be careful not to overspend—it can feel like you have unlimited funds if you’re new to using credit. Make sure you can pay off your balance in full to avoid a negative impact on your credit.
  • Keep utilization low. A general rule of thumb is to use no more than 30 percent of your card’s spending limit at a time. This will show lenders that you can be smart with your spending habits.
  • Make on-time payments. Late payments hurt your score immensely. Payment history actually affects 35 percent of your overall score. If you can’t make full payments at the card’s due date, at least pay off the minimum amount due on your balance.
Credit-building best practices: apply for a credit card, be responsible when spending, keep credit utilization low, make payments on time.

Why You Should Build Credit Young

Building good credit doesn’t just happen overnight. It takes years of smart moves and healthy practices to build a solid foundation. If you wait too long to start building, you’ll have a harder time when applying for loans or engaging in other financial decisions later.

Starting young also helps establish good credit practices from the very beginning. By doing so, you’ll be less likely to engage in activities that hurt your credit down the line. It can be easy to damage your credit, but hard to repair it. By learning this now, you hopefully won’t need to do much damage control later.

Although 18 is the required age to be a primary account holder on a card, there are still ways to start building credit at a younger age. This can be very beneficial for the future, as long as it’s done right. We know the process of applying for a card and building credit can be stressful at times—visit our credit repair blog to learn more about credit best practices.


Reviewed by Kenton Arbon, an Associate Attorney at Lexington Law Firm. Written by Lexington Law.

Kenton Arbon is an Associate Attorney in the Arizona office. Mr. Arbon was born in Bakersfield, California, and grew up in the Northwest. He earned his B.A. in Business Administration, Human Resources Management, while working as an Oregon State Trooper. His interest in the law lead him to relocate to Arizona, attend law school, and graduate from Arizona State College of Law in 2017. Since graduating from law school, Mr. Arbon has worked in multiple compliance domains including anti-money laundering, Medicare Part D, contracts, and debt negotiation. Mr. Arbon is licensed to practice law in Arizona. He is located in the Phoenix office.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Source: lexingtonlaw.com