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When it comes to credit cards and first learning how to use them, there can be a lot of confusion
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and misunderstanding about their functionality. If you are not careful, you can end up buying things that you can't pay back in full and
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then you enter into credit card debt, which will be a major headache. That idea of credit card debt is something that keeps a lot of people fearful of credit cards
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And today, I just want to take a few minutes and highlight some of the misconceptions around credit cards in the hope of giving some clarity to them
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Welcome to Life V. Lifestyle, the number one how-to adulting channel on YouTube
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And here we explain topics around adulting one-on-one using imagery, stories, and examples in a way that anyone can understand
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In today's video, we are going to talk about some of the biggest misconceptions that people might have about credit cards
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The first misconception deals with the idea that credit cards are innately bad and that you should avoid them at all costs because they put you into debt
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Let me be clear. Credit cards are not innately evil. They are just a tool for you to use to your advantage
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You just have to be sure that you are using credit cards to your advantage and not putting yourself at a disadvantage If you use them correctly and to your advantage they can help you save money get more with your money
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unlock cool perks and help you start laying the foundation for yourself to be able to buy some of the later in life milestones like a house
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Let's talk about the second misconception. And this deals with the idea that credit cards are not needed to build credit
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While technically this is true, it overlooks the reality that credit cards are by far the most accessible medium of credit for young people to get besides something like a student loan
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If you are looking to build credit, applying for a credit card is probably the most optimal way to begin that journey
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There is also a low barrier to entry. You only need to fill out an application and provide basic information in order to apply for a credit card
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And a credit card is usually considered a safer form of credit lines for most young people as taking out personal loans and other forms of credit might pose a greater financial risk
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Now let talk about what is arguably the biggest misconception when it comes to using a credit card And this deals with when to pay off your card in order to build credit Now this example right here is an extremely important one when it comes to credit
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cards. And I'm going to be providing a visual example, so definitely pay attention to this one
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here. So, let's look at a visual example where I follow the misconception to show how it hinders
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building your credit score. If your billing cycle is from January 19th to February 19th and your
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statement comes out on February 20th or 21st, let's say I have a current balance of $1,000
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and on February 14th, a few days before my billing cycle ends, I decide to pay $1,000 to clear my
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balance. That means my new current balance is $0. So if I make no more purchases or payments before
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February 19 when my billing cycle ends, my statement balance will show zero dollars. This
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is the problem. It is not reality when it comes to the usage of the card or on-time payments
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Remember again, credit utilization and on-time payments is a factor that determines your credit
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score You want to show usage and you want to show a history of on payments In this example my usage that reported to the credit unions shows a zero percent there can be no history of on payments because the statement is reporting no balance so there nothing to pay off
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This is why you should wait for your statement to post at the end of your billing cycle
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Your statement balance will show usage, which helps your credit score, and then you pay your statement balance off
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That will be recorded as an on-time payment, which also helps build your credit score
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Paying your card off before the statement posts is robbing yourself of credit growth
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So let's recap. First misconception, credit cards are not innately evil. Your experience with them will depend on how much you know about them and how you use them
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Second, credit cards are arguably the most optimal tool to build credit, especially as a new adult, because of their accessibility
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Lastly, be sure to try and always pay your credit card off after your billing cycle ends
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and your statement posts
