TPG’s beginner’s guide to credit cards: Everything you need to know
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A credit card may seem like just another payment method for online and in-person purchases. In reality, there’s so much more that goes into a credit card — from the varying fees to the types of rewards you could earn.
Maybe you’ve exclusively used debit cards for your whole life and have been apprehensive about venturing into the world of credit cards. Here at TPG, we know the power of using credit cards wisely (keyword, wisely).
When used correctly, you can unlock an incredible amount of value on your everyday purchases for free travel or cash back. Not to mention, your financial future depends on your credit score, whether it’s securing loans on a mortgage or a car down the line.
If you’re a credit card newbie, you’ve come to the right place. Read this guide, then reread it… and then maybe once more. Our goal is to help you navigate through the fundamentals of credit cards.
From the external to internal aspects of a credit card, there’s a lot of ground to cover here. We’ll break it down in the simplest terms possible.
What is a credit score?
There are multiple models available for credit scoring, but they’ll typically range from 300 (bad) to 850 (perfect). That score determines an individual’s creditworthiness and is calculated by numerous factors. An excellent credit score is a vital part of financial security and will help you unlock low interest rates on credit cards and future loans, increase approval for future cards and more.
Here at TPG, we’ve outlined our 10 commandments of credit cards that will help you improve and perfect your score. While you can read the full guide here, you’ll want to live and breathe these 10 simple principles:
- Thou shalt pay thy balance in full
- Thou shalt not miss a payment
- Thou shalt not cancel a card before thou hast opened a new card
- Thou shalt not cancel a card and lose thy points and miles
- Thou shalt not allow thy rewards to expire
- Thou shalt not miss out on a sign-up bonus
- Thou shalt take advantage of category bonuses
- Thou shalt not ignore cards with annual fees
- Thou shalt pursue retention bonuses
- Thou shalt not pay foreign transaction fees
The first three commandments pertain to cultivating good credit habits. By following these practices, slowly but surely, you will see your credit score rise. Most banks also offer free tools to check your credit score and provide tips for improvement.
Debit vs. credit card: What’s the difference?
In terms of the “internal” aspects of your credit card, there’s a lot to understand here. First, let’s go over the difference between a credit card and a debit card. A debit card looks virtually identical to a credit card, but every time you pay with a debit card, it’s extracting money directly from your checking account. Therefore, if you only have $500 in your bank account and charge $1,000 on your debit card, your transaction will be denied.
On the other hand, a credit card is like a personal loan. When you pay with a credit card, you are borrowing money from the issuer (up to your respective credit limit) with the expectation that you will pay the money back. If you fail to pay within the given time frame (typically around a month), you will start to pay fees and interest charges.
How to read your credit card bill
Credit cards can seem confusing to many as there are various terms and dates you have to keep tabs on. Once you understand them, we promise that it’s not as complicated as it initially seems.
You can access your monthly credit card statement that lays out all the charges you are responsible for paying back. If you pay off your statement on time and in full (which we recommend 100% of the time), then you won’t pay additional interest charges! However, if you pay your statement late or only pay the minimum amount — or maybe you do both — that’s when you start to get in trouble with fees.
Above, you see two numbers: “remaining statement balance” and “total balance.” Your credit card statement is broken down on a month-to-month basis, usually determined by the first day you opened your account.
For this user, their monthly credit card statement closes on the 10th of every month. This means “remaining statement balance” is the amount this user owes from the previous billing cycle, which in this case, is from April 11 to May 10 of $617.44.
The due date for this billing cycle will depend on your respective card (you can find this information in your terms and conditions), but for this American Express card, the payment is due 25 days after the last statement day. In this case, this user must pay $617.44 by June 10 to avoid interest charges kicking in. The minimum payment also depends on the card, but for American Express, it’s $35. This user already has paid the minimum amount (or more) for this billing cycle, so there is a minimum payment of $0 due.
This is why we say to pay your balance in full. Sure, you could pay the minimum payment on your balance each month — which is an incredibly low $35 for American Express — but that means your balance will start to accrue interest after the due date.
Next, your “total balance” refers to the entire amount that you owe to your card, including the “remaining statement balance” and next month’s billing cycle. In this case, the total balance comes from the charges accumulated between May 11 to June 10.
The last number to note is “available credit,” which is the amount left in your credit limit. This number will fluctuate as you pay off your balance or charge more to your balance. For example, this user’s credit limit is $3,700. You never want to max out your credit limit, as your card will be denied or be charged an over-the-limit fee if you charge more than your credit limit affords.
There are many best practices for credit cards — for example, how much you should charge to your credit card each month, also known as the credit utilization ratio. We will go over all this information in the “best practices” section of this guide.
Rates and fees
Now that you understand how to pay your credit card bill, let’s go over all the essential terms relating to rates and fees:
- Annual percentage rate (APR): The interest rate charged for the entire year. There are various types of APRs, from balance transfer, cash advance, penalty and purchase APRs. The most common APR type is your purchase APR, which is the interest rate charged to your credit card balance monthly.
- Balance transfer APR: The APR charged to your account when you transfer one credit card balance to another. If you complete a balance transfer, you may have to pay a balance transfer APR and/or a balance transfer fee.
- Cash advance APR: The APR charged to your account when you withdraw cash through an ATM or a bank with your credit card, up to your respective credit limit. If you complete a cash advance, you may have to pay a cash advance APR and/or a cash advance fee.
- Introductory APR offer: A reduced APR for a defined period can help you avoid additional interest charges on purchases, balance transfers, and more during this time.
- Penalty APR: The interest rate charged to your account when you fail to pay the minimum payment by your payment date.
- Purchase APR: The interest rate charged to your account when you fail to pay the full outstanding balance (more than just the minimum payment) by your payment date.
- Annual fee: The cost of owning your card, charged once per year. Some cards have no annual fees, while others can charge $550 (or more) per year.
- Foreign transaction fee: The amount charged to your account when paying with a foreign currency. Some credit cards waive foreign transaction fees, while others can charge fees — usually up to 3% of each transaction.
- Late payment fee: The amount charged to your account when you fail to pay the minimum payment by your payment date. In addition to the penalty APR charged to your balance, you’ll also be charged the late payment fee.
- Over-the-credit limit fee: The amount charged to your account when you exceed your credit limit defined on your card.
- Return payment fee: The amount charged to your account when your provided payment method for your credit card statement fails or bounces for reasons such as insufficient funds or account freezes or closures.
- Return check fee: The amount charged to your account when your provided check for your credit card statement fails and cannot be processed for reasons such as insufficient funds or account freezes or closures.
Travel credit cards
Now that you understand the credit card basics, it’s time to get into the fun part — the types of credit cards! There are so many different options on the market, tailored to your liking and financial needs. Your card can potentially offer rewards with bonus categories (2x on groceries and dining) or an unlimited rewards rate (1.5% on all purchases).
We are The Points Guy, so naturally, our favorite type of cards are travel credit cards. You’ll earn rewards (in the form of points or miles) with these cards on your everyday and travel purchases that can later be redeemed for award travel.
Most travel credit cards come with a sign-up bonus equating to hundreds (or even thousands) of dollars in value. You can also learn more about how much each currency is worth with our TPG monthly valuations — as it will vary greatly depending on the program.
General travel credit cards
General travel credit cards aren’t tied to one hotel or airline brand and earn transferable points and miles. This means your rewards are flexible and can be used to book any sort of travel through the issuer’s respective portal. In some cases, you can even transfer your points and miles directly to the issuer’s transfer partners for potentially greater value.
Here are some examples of our favorite travel credit cards from popular issuers. There are tons of benefits of owning the travel credit cards listed below, including the key benefit of accessing transfer partners.
|Issuer program||Card||Transfer partners|
|American Express Membership Rewards||19 airlines and three hotels; popular programs include Delta Air Lines and Hilton Honors|
|Chase Ultimate Rewards||10 airlines and three hotels; popular programs include United MileagePlus and World of Hyatt|
|Capital One Miles||16 airlines and three hotels; popular programs include Avianca LifeMiles and Wyndham|
|Citi ThankYou Rewards||16 airlines; popular programs include Etihad Guest and Virgin Atlantic|
The information for the Citi Prestige has been collected independently by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer.
These cards have annual fees ranging from $0 to $550. Still, frequent travelers will want to invest in a mid-tier or premium travel rewards credit card to get exclusive perks such as a Global Entry or TSA Precheck (up to $100) application credit, airport lounge access, travel statement credits and more.
Airline credit cards
The next type of travel credit card is cobranded airline cards. Airlines partner with banks to issue credit cards through their frequent flyer programs to attract their most loyal customers.
You’ll earn and redeem airline miles through one program, meaning that this currency isn’t as flexible as transferable points, which can book an infinite number of award travel. Still, we all have our favorite airline(s) — and owning an airline credit card can enhance your flying experience.
Depending on the airline credit card, you can get benefits such as a free checked bag, priority boarding, lounge access, a pathway to elite status and more — not to mention a healthy stash of airline miles that can score you some free flights (just pay taxes and fees). Here are our top picks from the major U.S. airlines:
American Airlines AAdvantage
- American Airlines AAdvantage MileUp℠ Card — $0 annual fee
- Citi® / AAdvantage® Executive World Elite Mastercard® — $450 annual fee
Delta Air Lines SkyMiles
- Delta SkyMiles® Blue American Express Card — $0 annual fee (see rates and fees)
- Delta SkyMiles® Gold American Express Card — $0 introductory annual fee for the first year, then $99 (see rates and fees)
- Delta SkyMiles® Platinum American Express Card — $250 annual fee (see rates and fees)
- Delta SkyMiles® Reserve American Express Card — $550 annual fee (see rates and fees)
Related: The best Delta credit cards of 2021
JetBlue Airways TrueBlue
The information for the JetBlue Card and the JetBlue Plus Card has been collected independently by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer.
Related: The best JetBlue credit cards of 2021
Southwest Airlines Rapid Rewards
- Southwest Rapid Rewards® Plus Credit Card — $69 annual fee
- Southwest Rapid Rewards® Premier Credit Card — $99 annual fee
- Southwest Rapid Rewards® Priority Credit Card — $149 annual fee
United Airlines MileagePlus
- United Gateway Card — $0 annual fee
- United Explorer Card — $95 annual fee, waived the first year
- New United Quest Card — $250 annual fee
- United Club Infinite Card — $525 annual fee
Related: The best United credit cards of 2021
Just like any credit card, the higher the annual fee, the better the perks. Sometimes, a higher annual fee is worth it for the most loyal customer. However, if you don’t often travel and just want the opportunity to earn airline miles, you’re better off with a no-annual-fee airline card or one under $100.
Hotel credit cards
The last type of travel card to know is a cobranded hotel credit card. Operating similarly to an airline credit card, you’ll earn and redeem points directly with the hotel chain. Likewise, the benefit of a hotel credit card is that you’ll get hotel-related perks such as free nights or upgrades — or even automatic elite status.
There are three major hotel chains in the U.S., and here are some of our top picks:
- Hilton Honors American Express Card — $0 annual fee (see rates and fees)
- Hilton Honors American Express Surpass® Card — $0 intro annual fee (see rates & fees) for the first year, then $95 (see rates & fees). Offer ends 8/25/2021.
Related: The best Hilton credit cards of 2021
- Marriott Bonvoy Bold Credit Card — $0 annual fee
- Marriott Bonvoy Boundless Credit Card — $95 annual fee
- Marriott Bonvoy Brilliant™ American Express® Card — $450 annual fee (see rates and fees)
World of Hyatt
- World of Hyatt Credit Card — $95 annual fee
Related: World of Hyatt Credit Card review
Other types of credit cards
Travel credit cards are our personal favorite, but there are plenty of other options worth considering, too. If you lack credit history or have an average credit score, you may look toward alternatives before graduating to better options. Let’s take a look.
Cash-back credit cards
While we love travel credit cards at TPG, we also see the value of owning a cash-back credit card, especially throughout the past year when everyone was staying at home. While certain travel credit cards earn transferable points, we recognize that cash back is truly the most flexible rewards currency available.
Tons of issuers have their own line-up of cash-back credit cards. Many people start with these cash-back cards since they’re user-friendly and the vast majority don’t carry annual fees.
Although many are advertised cash-back cards, many of them actually earn rewards in the form of points that you can convert to statement credits or direct deposit into your bank account. Each point is typically worth 1 cent each, so if you have 10,000 points, you’re looking at $100 in cash back.
If you decide to graduate to a more advanced travel rewards credit card, the best part is that many of these points may transfer over to these cards within the same issuer. That’s why it’s best to start with a cash-back card, as you’ll have the flexibility later on to earn and redeem with a (more complicated) travel credit card. Let’s take a look at our favorite cash-back options:
- Blue Cash Everyday® Card from American Express — $0 annual fee (see rates and fees)
- Blue Cash Preferred® Card from American Express — $95 annual fee; waived for the first year (see rates and fees)
Bank of America
- Bank of America® Customized Cash Rewards credit card — $0 annual fee
- Capital One Quicksilver Cash Rewards Credit Card — $0 annual fee
- Capital One SavorOne Cash Rewards Credit Card — $0 annual fee
Related: Best Citi credit cards of 2021
Related: Best Chase credit cards of 2021
Secured credit cards
If you’ve dabbled in credit cards in the past and have damaged your credit score, it can be hard to find a card that will approve you. You’re not alone — according to Experian, a third of Americans have a poor or fair credit score. Even before Brian Kelly became The Points Guy that we know today, he had his fair share of credit card debt from mismanaging his credit in his 20s.
If you’re looking to build (or rebuild) your less-than-perfect credit score, a secured credit card is the perfect place to start. They work just like regular credit cards — but with one major caveat. Your credit limit is determined by a deposit you put down upon account opening, which means a $500 deposit equates to a $500 credit limit. This deposit is fully refundable upon account closure and serves as an extra sense of security if you can’t pay off your bill.
Most secured credit cards don’t offer rewards — or if they do, they’re minimal. However, it’s crucial to build your credit score to good or excellent ranges so you can establish healthy credit habits and land those aspirational credit cards in the future. Some secured credit cards will even convert to a normal credit card after months of exercising good credit habits and therefore refund your deposit.
One of our top picks for secured credit cards is the OpenSky® Secured Visa® Credit Card. With a low annual fee of $35, this card does not require a credit check for approval and requires a security deposit of just $200 minimum.
Related: Best secured credit cards of 2021
Student credit cards
College students, listen up: The perfect time to apply for your first credit card is now. Most major credit card companies offer student versions of their popular cash-back credit cards — most likely with no annual fees.
And since you’re a student, you won’t need to have any sort of credit to qualify. This is another compelling reason to apply now, as you’ll start to build your credit incrementally and qualify for bigger and better travel rewards cards down the road. You’ll want to put only your essential expenses such as textbooks or monthly bills, as your credit limit will likely be low starting out.
Here are our top picks for student credit cards:
- Chase Freedom® Student credit card — $0 annual fee
- Journey Student Rewards from Capital One — $0 annual fee
- Citi Rewards+® Card — $0 annual fee
If you find yourself getting denied for various credit cards, the chances are that you lack “length of credit history,” which comprises 15% of your FICO credit score. A way to boost your credit history is to become an authorized user on someone else’s card — whether that be a parent, family member or spouse who already holds the credit card you want.
As an authorized user, you’ll have a credit card under your name that’s tied to the primary cardholder’s account. This means if you fail to pay your bills, the responsibility will fall on the primary cardholder. While some cards don’t charge anything for additional users, premium cards may charge an authorized user fee (that will always be lower than the cost of a new annual fee entirely).
Issuers have age restrictions for authorized users, while some do not have limitations whatsoever. By spending and managing your credit card wisely, being an authorized user can be highly beneficial as you’ll enjoy a nice boost in your credit history. Depending on the card, authorized users can enjoy benefits such as lounge access, discounts and more.
Credit card best practices
The other piece to worry about is how to use credit cards in the right way. While there’s certainly a wrong way to use credit cards, the following tips are just best practices that we recommend when it comes to credit cards:
Pay your balance on time and in full. We’ve repeated this multiple times in this article, but it’s truly the most important concept to understand about credit cards. You’ll negate any points and miles you earn if you start to accrue interest charges. It doesn’t matter how often you pay your bill during your cycle, so long as you pay the statement balance by your billing date. TLDR; Never miss a credit card payment.
Credit cards are not free money, so never charge more than you can afford. In the same vein, remember that you’ll owe the statement balance on your card each month. Budget and manage your credit wisely so your finances don’t get out of hand.
Understand credit card application restrictions. It’s not a good idea to apply to a ton of credit cards at once. Slow down, and be mindful that issuers have their own set of restrictions. The most infamous rule that we cite on our website is Chase’s 5/24 rule, which states that you won’t qualify for any Chase card if you’ve applied to five (or more) credit cards from any issuer in the past 24 months. Be intentional about how you use your 5/24 slots, meaning it’s a good idea to start with opening a Chase card first.
If you’re looking to grow your credit card portfolio, you should aim to wait at least three months (ideally, six months or longer) before you apply for a new card. Remember that 10% of your FICO score is determined by new credit. It’s a red flag you apply for new cards too quickly, so achieve a card’s sign-up bonus, see how you like the card and if the rewards you earn match your everyday spending habits and redemption goals.
Be careful about canceling a credit card. Sure, your first credit card likely won’t be the best rewards card ever, but you should be wary about canceling it. If it has no annual fee, there’s no harm in keeping the card in your wallet — potentially forever. Note that you’ll negatively impact your length of credit history if you do cancel your first credit card. Similarly, if you want to cancel a credit card with an annual fee, see if there are options for downgrading to a no-annual-fee option with the same issuer to not lose out on your rewards or credit history.
Credit card aspirations: Building a points-and-miles strategy
Now that you understand the fundamentals of credit cards and the different types you can apply for, it’s time to think deeper about your long-term credit card strategy. While it doesn’t make sense for everyone to own 20+ credit cards, you want to be intentional about the cards you keep in your wallet to provide the maximum returns on your spending habits.
Hopefully, this guide can help point you in the right direction of what your first (or next) credit card should be. We also have numerous articles on our sites for mapping out your credit card aspirations based on your age group and travel goals. Read them here:
- From no credit to free flights: An inside look at a 23-year-old’s credit journey
- Not just for the established elite: TPG millennials and Gen Z staff weigh in on their experience with premier rewards credit cards
- You’re never too old to get your first credit card: How to get started earning rewards
- Best credit cards for your 30s
- One card for every year I’ve been alive: My journey from college student to points pro
Where do you go from here? This may seem like information overload to you, so take things slow. If there’s one thing to take away from this guide, it’s that credit cards are phenomenal tools that can unlock so many outstanding redemptions and unimaginable vacations — so long as you pay your credit card bill on time and in full, and you never charge more than you can’t afford.
Now, you’re ready to move onto the roundup of our best first credit cards to select the best choice for you.
Don’t forget to like us on Facebook, follow us on Twitter and Instagram, subscribe to our newsletter, and be sure to check the site daily for news, updates and more — you’re about to be the savviest traveler you know. Welcome to TPG; we’re glad you’re here!
For rates and fees of the Amex Gold, click here.
For rates and fees of the Amex Platinum, click here.
For rates and fees of the Delta Blue Amex, click here.
For rates and fees of the Delta Gold Amex, click here.
For rates and fees of the Delta Platinum Amex, click here.
For rates and fees of the Delta Reserve Amex, click here.
For rates and fees of the Hilton Honors Amex, click here.
For rates and fees of the Hilton Honors Surpass, click here.
For rates and fees of the Marriott Bonvoy Brilliant, click here.
For rates and fees of the Blue Cash Everyday, click here.
For rates and fees of the Blue Cash Preferred, click here.
Featured photo by Isabelle Raphael for The Points Guy.
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Earn 90,000 bonus miles after you spend $3,000 in purchases within the first three months of card membership. Plus, earn a $200 statement credit after your first Delta purchase within the first three months. Offer ends 7/28/21.
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