5 Important Credit Card Tips For Young Adults
Young adults around the world have access to some of the most powerful and varied forms of information thanks to the internet.
But it can be confusing or difficult to find the right information to better equip themselves to deal with their finances. In this article, we are going to look at what we believe to be the most important credit card information for young adults so that they can take control and make informed choices.
First of all, you need to know the key difference between using a debit card and a credit card.
Debit Versus Credit
In simple terms, debit cards will give you access to the money you own. Credit cards will give you access to borrowed money.
Debit cards connect to your account and your money. In the vast majority of cases, barring overdrafts, you won’t be able to use a debit card if you don’t have money. Credit cards will give you access to money up to a certain limit – known as your credit limit, which is usually determined when you apply for the card.
If you do not pay off the statement balance (which varies from card to card and bank to bank) by the arrival of your next billing cycle, you will be required to pay interest on top of the money that you have borrowed.
So, how do you benefit from using a credit card?
Credit Cards Improve Your Credit Score
One of the most beneficial functions of a credit card is using credit cards to improve your credit score. It does require responsible use of a credit card to achieve, but it enables you to build a positive credit history that will give you greater finance options later down the line.
This is because credit card information and how you use them are reported to different credit agencies and bureaus. Debit cards do not affect your credit score in the vast majority of cases. Our biggest advice for you would be to apply for a credit card to make purchases of only what you can afford right now.
The method is simple. If you are buying a new phone outright or purchasing a plane ticket, use the credit card to buy it and either pay off the credit statement balance straight away OR before the next billing cycle. This will enable you to improve your credit score rating which can benefit your future when you apply for higher credit limits, business loans, or even mortgages.
This is the primary benefit of using a credit card. But what other differences do debit cards have versus credit cards?
PINs on Debit and Credit Cards
Personal identification numbers – known as PINs – are commonplace when using debit cards. Debit cards require a PIN in the vast majority of cases, unless you choose credit – but usually not the case as it is reflecting the part of your account that you are accessing.
Credit cards in the US do not require PINs to access the money borrowed from the bank. Instead, they use a chip and signature technology. This is because the credit card industry grew in the US without chip-and-PIN technology (requiring the use of a PIN).
This technology is rolling out slowly across the US, but not all institutions and stores have updated their systems to use the PIN technology. Typically, you will be required to swipe or insert the card and then sign the printed receipt that will be given to you by the store or restaurant.
In different parts of the world, chip-and-pin technology is commonplace on both debit and credit cards, depending on the amount spent. For example; if you travel to Australia, you will only be required to enter a PIN if spending more than $100 in a single transaction. So, make sure you do some research before traveling.
Routing Numbers on Debit and Credit Cards
Routing numbers – also known as an ABA number – is an important aspect of your cards that you need to learn.
An ABA number stands for the American Bankers Association. It is a nine-digit number identifying your specific bank and account. These routing numbers help different banks recognize each other as a government-supported financial institution. This facilitates easy transactions and provides additional security that money is sent to the correct account.
You may require your routing number in a variety of circumstances, such as:
- When making wire transfers, especially when making international transactions.
- Salary direct deposits, so that employers can set up regular payments to your account.
- IRS deposits, especially when you are receiving a tax refund at the end of the financial year.
- When paying bills, you can choose to use a bank routing number to make payments easier.
- Transferring money to other banks and institutions.
It is worth taking note that credit cards do not have ABA numbers. Credit cards instead use the credit card number to make the connection between the credit card holder and the credit card issuer (the bank in most circumstances).
Routing numbers are primarily associated with a checking or savings account – therefore only debit cards and associated accounts have them.
Smart use of credit and debit cards makes for better personal finance
Following this simple but important credit card information for young adults will enable them to make changes in their spending habits and their perspective when it comes to their finances.
These changes will lead to more informed decisions, less confusion, and powerful knowledge on how to improve their credit score by using credit cards more responsibly, and knowing how to utilize debit cards and their accounts to their full potential.
If you’d like to learn more about how to empower your finances and change your financial future, please feel free to check out the many useful tips on our website, the free videos we have on our YouTube channel, and the resources we have available too!
Also, don’t hesitate to get in touch as we are always happy to help answer your questions and support you – and don’t forget to sign up for the free newsletter to get the latest news and information.
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