5 questions a newbie cardholder asked me — and what I told her

Credit cards can be a little (or a lot) confusing, especially for people who have never had one before.

These aren’t as simple as debit cards and come with the risk of racking up high-interest debt. There is certainly a learning curve, and it’s wise to take the time to learn.

I recently wrote an article about the credit cards I recommended to my friends. One of my friends, Cat, an Army officer, was applying for her first credit card and asked me some questions. Some of my answers surprised her, and others seemed to save her money. If you too are considering getting your first credit card or are still building the foundation for your approach to credit cards, here is the advice I gave to my friend:

1. Which credit card should I get?

Getting your first credit card is the first step in the credit journey for many people, and this was certainly true for Cat. Without a credit history, your card options are limited. This isn’t necessarily a bad thing, as cards can be overwhelming. Plus, your first credit card should be minimalist, with no complicated points systems or complex rewards to try out.

I recommended two options to Cat: the Discover it® Secured Credit Card and the Capital One Platinum Credit Card.

Secured cards usually have lower credit requirements because you “secure” your line of credit with a refundable upfront deposit. Discover it Secured is Bankrate’s pick for the best secured card with a welcome offer. Discover automatically matches all cash back cardholders earn at the end of the first year. The card offers 2 percent cash back at gas stations and restaurants (up to $1,000 in combined purchases per quarter) and 1 percent cash back on other purchases.

My other suggestion was even simpler: The Capital One Platinum is a pretty bare-bones card. It doesn’t have any perks or fancy offers, but it also doesn’t require a deposit. And most importantly, you don’t need great credit to qualify. All of this makes this card a solid option for building credit, which is why Kat ended up applying for it.

2. Will spending more on my credit card help my credit score?

After Kat was approved for the Capital One Platinum Card, she had some questions about how to best use the card and strengthen her credit report in the process. She was under the impression that making large, regular payments would help her have a higher credit score. She also wondered if she could use the card to pay her rent.

Kat was surprised to learn that the amount or frequency of credit card transactions doesn’t actually affect your credit score.

“Should I put a recurring payment in there?” she asked. “Like a streaming service? Is that enough a month to build credit?”

I encouraged her to do so, and it’s a great habit for anyone who wants to keep credit cards to boost their credit score without actively using them. But there’s a bit more complexity involved, at least in terms of how it impacts healthy use and a better credit score.

“So if I pay my regular $14 a month, it’s the same as if I spent more?” Cat said. “Credit?”

So I decided to explain the concept of credit utilization ratio, the percentage of credit available to an individual. Using most of your card’s credit limit will not boost your credit score. In fact, it may even be counterproductive.

Experts strongly recommend keeping your credit utilization ratio below 30 percent, or as close to 0 percent as possible. Otherwise, you risk losing credit score points, as credit utilization is the second most influential credit factor after payment history. The transaction amount itself isn’t important, but rather how it affects your overall credit utilization.

For example, if you spend $200 on a card with a $20,000 limit, your credit utilization ratio will increase by 1 percent. However, if your credit limit is also $200 (not uncommon with secured cards), your credit score may drop because you’ve maxed out your card.

3. Can I pay rent with a credit card?

When it comes to paying rent with a credit card, it’s probably not a good idea, even if your credit card limit is high enough or you can pay it off quickly.

Landlords who allow card payments typically add a 2-3 percent fee for such transactions. Even if your landlord doesn’t offer this option, there are third-party services that allow you to pay rent with a credit card; the fees are roughly the same.

According to a recent report from the U.S. Census Bureau, the average rent for a vacant apartment in the U.S. is $1,469. If you were to pay an additional 2.9% per month on top of that fee, you’d pay about $43 per month on top of your rent, or $516 per year.

Another thing to consider: Paying rent with a credit card isn’t the only way to add to your credit. For example, you can use a service like Experian Boost to add eligible rent payments to your credit report. There are limitations, like which credit score it will affect (yes, there is more than one credit score), but when you’re just starting out, nothing will help you in the slightest.

4. Can I set up my card payments to be completed automatically?

Kat’s next question was about how to make sure she never misses a payment, which made me happy: She wanted to know if she could set up her card to automatically pay her monthly bill.

The answer is yes! This great feature is called autopay. Most credit card issuers offer it, and you can set it up online or over the phone. You can set it to pay the minimum amount, the full amount, or any other fixed amount that appears on your statement each month.

This is a convenient way to ensure you always pay on time and is the best thing you can do for your credit — not to mention avoid late fees.

Still, autopay might not be for everyone. I only set it up for cards I don’t use often. For cards I charge often, I try to go into my banking app every week or so to pay the balance. This helps me monitor my spending more closely and makes sure weird charges that could indicate fraud don’t show up in my transactions. Plus, it’s easier to pay in small amounts than to get a big bill every month.

5. If I repay the full balance, will my interest rate be affected?

Kat had no intention of paying interest and had the right idea to avoid it. Certainly, you won’t be charged interest if you pay the full balance on your statement each month. So, no matter what the interest rate is, as long as you consistently pay your card bills in full, you don’t have to worry about interest. To be honest, I don’t even know the interest rate on my cards. I know it’s around 25%, but I don’t want anything to do with it.

The Credit Card Act of 2009 requires lenders to give you bills at least 21 days before the payment due date. During this time, most card issuers offer an interest-free grace period. Therefore, you won’t be charged interest immediately after your purchase unless you withdraw cash from your credit card. In this case, the cash advance APR applies immediately. This is different from the regular purchase APR and is usually higher, so we recommend you avoid this type of transaction.

Issuers are not legally required to offer a grace period, and I have seen cards that don’t offer one. Interestingly, such cards tend to target users with poor or no credit. Always read the terms and conditions so you know what to expect.

Conclusion

“Credit cards are really weird,” Cat concludes as she finishes her question. It’s true that not everything about credit cards is immediately understandable. For example, you’re likely to get a confused look when you tell them that credit scoring models penalize you if you max out your credit limit. After all, that’s just the amount the bank has agreed to lend you. It’s not hard to imagine how nonsensical that can seem to someone new to credit cards.

Still, credit cards are one of the most flexible and reliable ways to build credit if used responsibly. If you have questions, take the time to research them or email me at [email protected]. You can also find me on TikTok and Instagram.