Financial literacy requires practice, and some credit cards can become handy tools when you’re still learning.
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It’s financial literacy month, which means I have yet another opportunity to advocate for self-education in personal finance. The majority of states still don’t have a personal finance requirement in high schools, all while young people are striving to learn about money. If no one has been there to teach you money management, it falls on your shoulders to learn and practice good financial and credit habits.
See related: Amex partnering with Zogo to pay cardmembers for learning about money
“Practice” is an important word here. Before you feel comfortable making big financial decisions and establishing routines, you may want to get your feet wet and take your time to learn the right habits.
Fortunately, there are tools that can help you learn. In this article, we’re going to discuss credit products that encourage smart financial behavior and can teach you financial responsibility.
Read more from our credit card experts.
Credit products to help you learn good financial habits
When you’re new to credit, you have limited options when it comes to credit cards. Premium rewards cards may not be available to you, but you can use this as an opportunity to master your credit usage. This way, when you do have a top credit card product, you’ll know how to make the most of it and avoid common rookie mistakes.
Good products to start your credit journey with include secured credit cards and starter credit cards. They can still, however, be harmful to your scores if you misuse them, and it may take years to repair your credit.
If you’re worried about that, you may want to look into these three products that offer features aimed to encourage responsible credit card usage.
Self Visa® Credit Card
The Self – Credit Builder Account + Secured Visa® Credit Card is a secured card with a twist – a twist that disciplines you to maintain positive payment history.
To get this card, you’ll need to open a Self Credit Builder Account first. Self will issue you a small loan (no credit check required), but you’ll get access to the money only once you finish paying off the loan. Your payments will be reported to the three credit bureaus, so that while you’re learning to be a responsible borrower you’re also improving your credit.
When you’ve made at least three monthly credit builder loan payments on time and in full, saved at least $100 in your credit builder account and have no outstanding fees, you become eligible for the Self Visa Credit Card.
One of the unique features of this card is its buildable security deposit. The Self Visa uses the money that’s already in your credit builder account to secure your line of credit. With the credit builder account, you choose the monthly commitment that works for you to build up your deposit over several months. Typically, secured credit cards require that you pay the deposit upfront, but the Self Visa will allow your budget more breathing room.
Additionally, you can choose your card’s credit limit based on the amount you have in your credit builder account. For instance, if you’ve already saved up $1,000, your credit limit can also be up to $1,000.
The higher your credit limit, the easier to keep your credit utilization ratio low. Your credit utilization ratio is how much balance you have compared to your credit line, and you want to keep it under 30% – the lower, the better. Otherwise, it can do some serious damage to your credit, being the second most important credit factor.
The Self Visa is quite forgiving when it comes to fees and penalties. So, if you do make a rookie mistake and pay late, the APR on the card won’t become higher. The first time your payment is late, you won’t even have to pay a late fee, which is also comparatively low on the Self Visa – only $15.
Don’t take it as a sign, however, to miss your payments. The Self Visa may forgive you, but your credit report will remember every payment that’s at least 30 days late for seven years.
Varo Believe Program
If you want an even safer way to build credit and learn credit card responsibility, you might like the new credit building product from Varo Bank.
The bank has recently introduced the Varo Believe Program that helps users with bad credit or no credit history avoid getting into debt while improving their credit scores.
The card reserves the money you spend from a linked Varo bank account into a “Vault Account” to pay the card’s balance on time and in full every month. The issuer will then report this positive payment history to the three credit bureaus. You’ll be able to monitor your credit score on your Varo Bank app free of charge.
To use the program, you don’t need to pay a deposit or any annual fees. There’s also no APR since you’re not going to carry a balance.
This card leaves no room for mistakes since it does the job of saving up the money to pay your credit card bill and won’t allow you to spend more that you have in your bank account. It’s a secure way to build your credit without the fear of getting into debt many young people have.
To start, you’ll need to open a Varo bank account and set up direct deposit. Once you meet the eligibility requirements, the bank will invite you to apply in the app.
Petal® 2 “Cash Back, No Fees” Visa® Credit Card
For many cardholders, the main motivation behind using a credit card is earning rewards. Some maximize cash back, others have mastered travel rewards. Other credit card afficionados have well-rounded credit card strategies that involve both.
If your goal is also rewards, the Petal 2 “Cash Back, No Fees” Visa Credit Card may be a good place to start. The majority of starter credit cards don’t have much to offer when it comes to rewards, but with the Petal 2, you’ll start earning 1% on eligible purchases right away. Then, after you make 12 on-time monthly payments, your cash back rate will grow to 1.5%, which is on par with some popular flat-rate cash back credit cards. Additionally, you can earn 2% to 10% cash back from select merchants.
This system incentivizes you to pay on time every month, which is key to attaining good credit. On top of that, the card charges no annual fee, requires no deposit and boasts much higher credit limits than most cards in this category. Plus, the issuer evaluates more than your credit when considering your card application, meaning if you’re new to credit, your alternative credit data may be used and get you an approval.
To help you learn good credit habits, the card also comes with money-management tools available in the app.
Still, you need to make sure you not only pay on time every time (even though the card won’t charge you a late fee if you don’t), but you also pay in full. Otherwise, the high APR will eat into your rewards. And that’s not a good credit card practice, my friend.
When you’re new to the world of personal finance and have a lot to learn, it’s a good idea to be cautious when taking your first financial steps. Luckily, there are credit products aiming to help you become more responsible with your money and debt.
Check CardMatch for credit cards that match your credit profile to find products that can help you enter the world of cards – checking your matches is free and won’t hurt your young credit.
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