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Being a young adult is an exciting time – it means living on your own, starting or growing your career, and managing life on your terms. It also means financial planning, paying bills, grocery shopping, and other not-so-fun responsibilities.

As you navigate adulthood, creating and maintaining good financial habits can be difficult and overwhelming, but it doesn’t have to be. Using a budget or contributing to a retirement account are important pieces of financial management, but credit cards are another important component because they help you build credit, which can help you buy a home, lease or purchase a vehicle, and so much more.

Read on to learn about the types of credit cards, how to manage one, and why credit scores are so important.

Types of Credit Cards

Financial institutions, airlines, and retail stores offer a variety of credit card options. When applying for a credit card, it’s important to understand the type you’re looking for and which one aligns with your financial goals and needs.

Someone looking to earn airline miles will need a different credit card than someone looking to pay off their monthly expenses – and while cards can generally be used for more than one purpose, it’s important to know the difference before applying.

• Cash Back Rewards Credit Cards: This type of card is ideal for beginners because they are the easiest to understand. Cash-back credit cards reward users with a percentage of cash back for their spending each month. Many cards have quarterly promotions sewn into the cash-back bonuses, such as 5% cash back for grocery shopping. The cash rewards can be used to purchase gift cards or can be applied to your statement credit to help pay off your balance.
• Travel Credit Cards: Designed for avid travelers, a travel credit card is usually co-branded with an airline (i.e., Delta’s American Express credit card) to allow users to earn points or miles on every purchase, which can be used to purchase a flight. When a card is co-branded, there are usually restrictions, meaning a Delta card can only be used for a Delta flight.
• Store Credit Cards: Many retail stores (i.e., TJMaxx, Old Navy, Target, etc.) offer store credit cards with discounts to incentivize spending. Stores may offer discounts, such as 5% cash back on all purchases, or big discounts for signing up in-store, such as 20% off your first purchase.

While all credit cards can help you build credit, it’s important to understand the associated requirements. Some, like store credit cards, may require you to spend a certain amount before you qualify for an in-store discount, while others may have hefty annual fees.

 Managing Credit

When you open a credit card, there are a few things you should keep in mind, such as fees and whether you can maintain monthly payments. You should never spend more than you make, and if you find yourself overspending, it may be a sign to reduce your monthly limit.

Many credit cards have fees associated with annual maintenance or failure to pay the minimum balance each month. Make sure you understand the rules associated with your credit card so you don’t rack up additional fees on top of your balance.

Here are a few tips to manage a credit card responsibly:

• Avoid carrying a balance without paying it off. As a balance increases, so does the interest rate. A credit card, regardless of the type, is considered a loan, so making consistent payments will help you maintain a good credit score and low debt-to-income ratio.
• Always make monthly payments. While many cards have a minimum payment requirement, it is usually much less than the balance you’ll likely accrue. Make sure you’re zeroing out your balance each month, or at least have a solid debt-payoff strategy to reduce your balance.
• Pick a credit card due date that works for your finances. If you have a car payment, rent, and other large expenses due on the first of each month, you may want to adjust your credit card due date for the middle of the month to spread out your expenses.

Credit Scores

A credit score is a three-digit number between 300 and 850 used to assess your financial responsibility. The higher the score, the better you look to lenders. A score can be affected by a few different things, such as the length of credit history, the amount owed, payment history, and more. Combined, these factors determine a score that can go up or down depending on how you manage your card. Someone who pays their balance off every month and on time will have a higher score than someone who carries a balance or doesn’t make minimum monthly payments.

Credit scores are essential to future lending opportunities, such as buying a home or vehicle, and can be the deciding factor on whether you get a loan and what your interest rate will be. That’s why it’s important to maintain healthy financial habits if you have a credit card.

The world of credit is big, but with the proper tools and resources, every cardholder can succeed when using one. Read financial blogs, follow financial experts on social media, and learn the ins and outs of everything you need to have a solid financial foundation.

Written by Miranda Ferris, Let’s Detroit