6 Ways To Manage Credit While In Your 20’s

When you are in your 20s, credit card companies will offer you competitive interest rates to earn your business. While there are many products to choose, here is all you need to know about how credit cards work and how to successfully manage and account.

What Is Revolving Credit

When a person is approved for a credit product, he or she will be responsible for making a minimum monthly payment. If a customer actively uses the account, an annual interest rate calculates on a balance. The higher the credit balance, the higher your payment will be.

In contrast to a loan, a credit card will remain open even if the account has a zero balance. If you decide that you no longer want a credit card, you can request it to be closed based on the stipulations of your credit card company.

The most common types of revolving credit are secured credit cards, cash back credit cards, regular credit and retail cards. A few of the places where you can apply for a retail credit card at a department store or a gas station.

1. Effective Ways To Manage Credit Cards

One of the best ways to avoid monthly interest accrued on an account is to pay the previous statement balance in full before the next payment is due. Most financial institutions highly recommend applying for a credit product with a balance of no more than $500, if you have a job or your parents can assist with managing the account.

It is important to make minimum payments on or before the due date. While you are in school or working, it is easy to forget to pay. On your smartphone, add a monthly reminder on your calendar to avoid being late.

If you can afford to double your monthly payment, there is a higher chance that you will pay off the balance within a short period. It will save you money on monthly interest fees over a longer period.

2. What Happens When Payments Are Late

If the time comes that you can't make a payment on time, a late fee will post on the account on your next billing statement. Based on your lender's account policy, most late fees range between $15 to $35.

When you are late for more than two consecutive months, your interest will increase. As a result, your finance charges increase, and it may take you longer to pay off the balance. You must make six monthly payments consecutively when the payment is due for the interest rate to go back to the original rate.

3. How On Time And Late Payments Affect A Credit Score

If you are more than 30 days past due, the financial institution will report the information to a credit bureau that can stay on your file for seven years. Furthermore, your credit score will gradually decrease and will dictate if another lender will approve you for a new credit account.

As a person in your 20s, the goal is to work towards a credit score of 700 or higher. It can take a few years to achieve these results.

4. What To Do If You Can’t Make A Payment

The first thing to do is to call your lender and explain your situation because there are payment programs are offered, or a representative can extend the due date.

If you are in a tough financial situation, the last resort is to contact a debt counseling company for help.

5. What Is A Secured Credit Card

While you are in your 20s, it is wise to start with a secured credit card because it is a refundable deposit you make into an account. The history of a secured credit card is reported to the three credit agencies; Equifax, TransUnion, and Experian. The bank will assign you a credit limit between 50% to 100% of the deposit you make into the account.

6. How A Cash Back Credit Card Works

A Cash Back Credit Card is suitable for people that can afford to pay their balance in full every month. Cash Back Credit Cards pay you cash when you use them and pay your bills on time.

A lender will calculate a flat interest rate on the amount of money that you spend. One of the reasons people choose a Cash Back Credit Card is it offers low introductory interest rates, promotions and a long interest-free period.

If you have a high rate of between 4 to 5 percent in the first six months of opening an account, it will be easier for you to pay off the balance.

While you are in your 20s, it is the best time to apply for credit and use it wisely. By the time you turn 30, if you’ve managed your account responsibly, it will be easier for you to apply for a mortgage or other forms of credit.


Makeda Waterman

Makeda Waterman is a passionate freelance writer, blogger and lover of life with an education in Journalism and Mass Communications. She writes for the Huffington Post and produces high-traffic lifestyle and entertainment blogs.