12 Top Credit Card Questions Answered

Credit cards can be useful and rewarding financial tools. Yet despite the many benefits they can provide, it’s important to have a clear understanding of how credit cards work. As a credit cardholder, you should also know how these accounts impact your credit score and the right way to manage your credit cards to avoid potential problems.

Whether you’re a brand new credit card user or a seasoned cardholder, here are the answers to some common questions you should know.

1. What questions should you ask when you apply for a credit card?

There are many different types of credit cards—so many that it may be tough to figure out which credit card application to fill out. But when you ask the right questions, it’s easier to determine which credit cards might be a good fit for your wallet.

Here are some factors to consider before you apply for a credit card.

• What are the credit score requirements to open the account (and can I satisfy them)?
• Will the card issuer reward me for my spending (e.g., cash back, points, miles, etc.)?
• Are there other cardholder perks (e.g., welcome bonuses, travel benefits, balance transfer offers, etc.)?
• Is there an annual fee?
• What is the APR? (See below.)

The perfect credit card doesn’t exist. Yet when you research available options, it should be easier to find credit cards that make sense for you.

2. What is the average credit card limit?

A credit limit is the maximum amount of money you can borrow on a credit card at a given time. According to Experian, the average credit card limit in the United States was $29,855 in Q3 2023.^[1]

Having a credit card with a higher credit limit might be good for your credit score, depending on how you manage the account. The reason this is true is due to the impact credit card limits can have on your credit utilization ratio and, by extension, your credit score.

Credit utilization describes the percentage of your credit card limits in use. The higher your credit utilization ratio climbs, the worse the impact will typically be on your credit score.^[2]

Here’s why your credit limit matters. If you owe $500 on a credit card with a $500 limit, your credit utilization ratio is 100%. In other words, you’re utilizing 100% of your credit limit. But a $500 balance on a card with a $5,000 limit translates to a credit utilization ratio of only 10%—a much better outcome for your credit score.

If you have low limits on your credit cards, working to lift your credit score might put you in a position to qualify for credit limit increases in the future. In the meantime, it remains important to pay off your credit card on time every month and pay off your full balance if possible.

3. What is a balance transfer credit card?

A balance transfer credit card often refers to the process of moving debt from a high-interest credit card or loan to a new credit card with a lower interest rate. The new credit card may feature an introductory APR (often 0%) that expires after a period of time. Once the promotional APR ends, the standard APR on the account will apply to any remaining balance leftover from the transfer.

Most balance transfer offers also feature a balance transfer fee. Balance transfer fees are often 3% to 5% of the amount you move to the new credit card or a flat dollar amount (e.g., $5 to $10)—whichever amount is greater.^[3]

Credit card interest rates are notoriously high. The average credit card interest rate was 22.63% in Q1 2024 according to the Federal Reserve (on interest-assessing accounts). A well-managed balance transfer often has the potential to save you money. But you should still use a balance transfer calculator to do the math (including the added cost of any balance transfer fee) to make sure consolidating your debt with a balance transfer credit card is a wise decision.^[4]

If you do use a balance transfer credit card, keep in mind that it’s usually in your best interest to pay off the debt you transfer as aggressively as possible. The ideal scenario would be to pay off any debt you transfer before the promotional APR expires on your new account.

4. How can I get a credit card with bad credit?

Most credit card issuers have minimum criteria you must satisfy to be eligible for a new account. And if you have bad credit, you may have trouble qualifying for certain types of credit card.

Yet having bad credit doesn’t mean it’s impossible to qualify for every credit card. There are credit card options available for consumers with bad credit—even if those options may be more limited.

You might be eligible for a secured credit card (see below) with negative credit history or a bad credit score. There are also some unsecured credit cards for bad credit as well. It’s wise to compare multiple options to find the best solution for your situation.

No matter what type of account you open, it’s important to handle your credit card in a timely manner. On-time payments and a low credit utilization ratio are key. If you follow these guidelines, a new credit card has the potential to help you build positive credit over time.

5. What is a secured credit card?

A secured credit card is a type of credit card you back with collateral—typically a savings account or a certificate of deposit (CD). In many cases, the security deposit you make when you open a secured credit card is equal to the credit limit on the account.

Because your security deposit acts as collateral, the credit card issuer’s risk on a secured credit card is reduced. As a result, it’s often easier to qualify for this type of account even if you have less-than-perfect credit.

On the negative side, secured credit cards may feature higher APRs compared with unsecured credit cards. Other secured credit cards may come with fewer rewards or higher fees. Still, when you open a secured credit card and use it in a responsible way, it could be a helpful tool to establish credit over time.

If you’re considering a secured credit card, FICO recommends looking for a card that reports to all three of the major credit bureaus—Equifax, TransUnion, and Experian. After all, on-time payments can’t help you build credit history if they don’t appear on your credit reports.^[5]

6. How do you apply for a credit card?

Below are some tips to help you understand how to apply for a credit card when you’re ready, and perhaps improve your chances of qualifying for a new account.

1. Review your credit reports and credit scores.

Before you fill out a credit card application, it’s important to understand where your credit stands. You should check your credit reports from all three credit bureaus. Reviewing your credit scores may be wise as well.

With good credit or excellent credit, you may have more options when you shop for credit card offers. But if you have bad credit, you should look for credit card offers that are a better fit for your current situation.

It’s also important to review your credit reports for errors. Credit errors could damage your credit score in an unfair manner. But the Fair Credit Reporting Act (FCRA) gives you the right to dispute any inaccurate or incomplete information that appears on your credit report. Keep in mind, the credit bureaus can keep accurate, negative information on your credit report for as long as the FCRA allows—as long as seven to ten years in many cases. So, if you dispute negative but accurate information, a credit bureau will likely verify it and, if so, it will remain on your report.^[6]

2. Determine your priorities

Next, figure out which credit card features matter most to you. If you’re having trouble narrowing down an endless list of credit card offers, consider asking yourself questions like the following.

• Do I need to consolidate debt?
• Is the ability to earn rewards or cash back important to me?
• Do I want to avoid paying an annual fee?
• Do I need a low interest rate (because I’m likely to carry a balance)?

Be realistic about the types of credit cards you’re most likely to qualify for based on your creditworthiness. If you have bad credit or no credit, for example, it’s probably not a good idea to apply for credit cards that require a good or excellent credit score for approval—at least not until you work to build your credit first. However, some secured credit card options, like the secured Self Visa® Credit Card, require no credit check.

3. Submit your application

Once you narrow down your final choice, you may be ready to submit your credit card application. Some credit card companies may offer a pre-qualification or pre-approval process so you can check to see if you’re eligible for a credit card offer with only a soft credit inquiry that won’t hurt your credit score. If this option isn’t available, be careful about applying for too many credit cards in a short period of time.

You don’t have to worry about applying for credit when you need it. But numerous credit card applications at once could damage your credit score. According to FICO, a new credit application (aka hard credit inquiry) should lower your credit score by less than five points (though every credit score is different). Credit inquiries can remain on your credit report for up to 24 months. But they only factor into your FICO® Score for a 12-month period.^[7]

7. How do you use a credit card?

A credit card is a versatile financial tool that can offer many valuable benefits. But if you’re not careful, credit cards could also lead to debt, bad credit, and stress.

So, it’s essential to use your credit card the right way to avoid potential problems. Here are some tips that may help.

• Pay on time. Because payment history accounts for 35% of your FICO Score, it’s essential to avoid late payments on your credit cards. Even the occasional late payment could have a serious negative impact on your credit score.^[8]
• Repay your full statement balance. The best way to use a credit card is to only charge as much as you can afford to repay each month. If you follow this rule, you should be able to pay off your full statement balance each month by the due date. This good habit will allow you to enjoy your card benefits without incurring expensive interest charges.
• Consider paying early. If your credit card shows a high balance for the month, paying it off early might lift your credit score. When you pay your balance before the statement closing date on your account, your card issuer may report a low balance (or even a $0 balance) to the credit bureaus. This could reduce your credit utilization ratio and give you a possible lift where your credit score is concerned.^[9]

8. What is APR on a credit card?

APR stands for annual percentage rate. On a credit card, APR represents the interest rate a credit card company charges you on any unpaid balance you owe.

An important detail to remember about credit cards is that you can avoid paying interest on these financing products if you develop the habit of never revolving a balance from one month to the next. If you’re dedicated to this rule, the APR on your credit card essentially doesn’t matter. But if you think there’s a possibility you might carry a balance on your credit card, your account APR could matter a great deal.

It’s best to open a credit card with the lowest APR possible if you plan to revolve an outstanding balance, even from time to time. Or, better yet, you may want to look for more affordable sources of credit.

9. How should you pay a credit card bill?

As mentioned, the best strategy for paying a credit card is to repay the full amount you borrow each month by at least the due date on your account. Paying your full balance early could be an even better approach to possibly maintain a lower credit utilization ratio.

You might also want to consider scheduling an automatic payment to your credit card issuer each month in case you ever forget to make a payment by the due date on your account. If you schedule auto pay for at least the minimum amount due it may protect your credit score and help you avoid potential late fees.

10. What is the minimum payment on a credit card?

A minimum payment is the smallest amount of money due during a monthly credit card billing cycle. If you pay at least the minimum payment to your credit card issuer, you can keep your account in good standing and avoid late payments on your credit report plus any late fees.

In general, your credit card issuer will calculate your minimum payment in one of two ways.

• A flat percentage of your credit card balance (e.g. 2%-4% of the balance).
• A percentage of your credit card balance plus interest and fees (e.g. 1% of the balance plus interest and fees).

Alternatively, if the minimum payment you owe to your card issuer is under a certain dollar amount, you card issuer might charge you a fixed amount as your minimum credit card payment (e.g., $25-$35).^[10]

No matter how your credit card company calculates minimum payments, it’s important to understand that paying only this amount is a risky habit. If you only pay the minimum amount due, you’ll roll over outstanding debt from one billing cycle to the next and owe interest charges to your card issuer.

When you repeat the cycle of using your credit card for charges and only pay the minimum payment each month, this habit could lead to serious financial problems. Your credit card debt will grow over time. And the amount of money you spend on interest charges will likely increase as well—especially when you consider the fact that credit card interest rates tend to be high compared to other types of financing.

Consider the following example. According to the Forbes Advisor Credit Card Minimum Payment Calculator, it would take you over 10 years (125 months) to pay off $2,500 in credit card debt with a 23% APR. During that time you would pay close to $2,100 in interest. This calculation assumes you’re only making the minimum payment due (4% of the balance—starting at around $48 per month) and you’re not using the card for any new purchases.^[11]

11. What is a cash advance on a credit card?

A credit card cash advance is the process of borrowing cash against your credit limit. Yet before you use your credit card to access cash, it’s important to understand the costs associated with this type of transaction.

• Cash advance fee: Most credit card issuers will charge you a cash advance fee if you use your credit line to access cash. The typical cash advance fee is around 5% of each cash advance you request. But you should check your credit card agreement to confirm how much your credit card issuer may charge you.^[12]
• Cash advance APR: When you use your credit card for a cash advance, the regular APR on your credit card doesn’t apply to those transactions. Instead, your credit card issuer is likely to charge you a higher interest rate on any cash advances that post to your account.
• No grace period: When you use your credit card for a cash advance, the balance will start to accrue interest right away. There’s no grace period like you enjoy with standard purchases where you can pay off the balance by the due date and avoid interest.

12. At what age can you get a credit card?

You must be at least 18 years of age to open a credit card account on your own. Yet thanks to the Credit CARD Act of 2009, you’ll need to prove an independent source of income or provide a cosigner over the age of 21 to open a credit card account before your twenty-first birthday.^[13]

That being said, you may be able to ask a friend or family member to add you as an authorized user to a credit card account before you turn 18 if you desire to build credit early or have access to a credit card. Some credit card companies may allow authorized users as young as 13 years old. But parents should use discretion when adding children to credit card accounts and only take this step when they believe a son or daughter is ready to use a credit card responsibly.^[14]

Bottom line

There are many reasons to open a credit card. These popular payment methods have the ability to help you establish your credit score, offer rewards, and may feature other benefits as well.

But it’s important to do your research and avoid bad habits like those mentioned above. The more you learn about how credit cards work, the better prepared you’ll be to take advantage of the perks these financing tools have to offer without worrying about potential negative consequences of using credit cards the wrong way.

Sources

1. Experian.com. “What’s the Average Credit Limit on a Credit Card?” https://www.experian.com/blogs/ask-experian/what-is-average-credit-limit-on-credit-card/#:~:text=The%20average%20credit%20limit%20on%20credit%20cards%20in%20the%20U.S
2. myFICO.com. “What Should My Credit Utilization Be?” https://www.myfico.com/credit-education/blog/credit-utilization-be
3. Experian.com. “What Is a Balance Transfer Fee?” https://www.experian.com/blogs/ask-experian/what-is-a-balance-transfer-fee/
4. FederalReserve.gov. “Consumer Credit.” https://www.federalreserve.gov/releases/g19/current/
5. myFICO.com. “What Should You Look for in a Secured Credit Card?” https://www.myfico.com/credit-education/blog/secured-credit-card-tips
6. ConsumerFinance.gov. “A Summary of Your Rights Under the Fair Credit Reporting Act.” https://files.consumerfinance.gov/f/201504_cfpb_summary_your-rights-under-fcra.pdf
7. myFICO.com. “Credit Checks: What are credit inquiries and how do they affect your FICO® Score?” https://www.myfico.com/credit-education/credit-reports/credit-checks-and-inquiries
8. myFICO.com. “What Is Payment History?” https://www.myfico.com/credit-education/credit-scores/payment-history Accessed June 2024
9. CapitalOne.com. “What to know about paying a credit card early.” https://www.capitalone.com/learn-grow/money-management/paying-credit-card-early/
10. Experian.com. “How Is a Credit Card Minimum Payment Calculated?” https://www.experian.com/blogs/ask-experian/how-is-your-credit-card-minimum-payment-calculated/
11. Forbes.com/Advisor. “Credit Card Minimum Payment Calculator.” https://www.forbes.com/advisor/credit-cards/credit-card-minimum-payment-calculator/
12. Chase.com. “What is cash advance on a credit card & how does it work?” https://www.chase.com/personal/credit-cards/education/basics/how-do-credit-card-cash-advances-work
13. Experian.com. “Can I Get a Credit Card at 16?” https://www.experian.com/blogs/ask-experian/can-i-get-a-credit-card-at-16/
14. AmericanExpress.com. “Terms and Conditions.” https://www.americanexpress.com/us/credit-cards/features-benefits/additional-card/terms-and-conditions.html#:~:text=Additional%20Card%20Members%20must%20be,defaulted%20account%20with%20American%20Express.&text=When%20you%20request%20that%20we,you%20agree%20to%20these%20terms

About the author

Michelle Lambright Black is a nationally recognized credit expert with two decades of experience. She is the founder of CreditWriter.com, an online credit education resource and community that helps busy moms learn how to build good credit and a strong financial plan that they can leverage to their advantage. Michelle's work has been published thousands of times by FICO, Experian, Forbes, Bankrate, MarketWatch, Parents, U.S. News & World Report, and many other outlets. You can connect with Michelle on Twitter (@MichelleLBlack) and Instagram (@CreditWriter).

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