Credit Cards for Millennials: Terms, How to Apply & Rewards Programs

Credit cards are a hot topic for Millennials. Half of the world tells us that credit cards are pure evil and the other half constantly brags about the “rewards” they get for using one.

And then there’s Samuel L. Jackson on TV every night demanding to know: “What’s in YOUR wallet!”

If you’re just getting out in the world and your wallet doesn’t have a credit card, there are some questions you need answered before claiming one:

• Why would I ever want a credit card?
• What is the advantage of a credit card?
• Where should I start?
• Why is Samuel L. Jackson so obsessed with my wallet?

The short answer to these questions is: If you carry enough cash to pay for purchases, don’t bother with credit cards.

However, the other side of that story is: Cash is great for tonight, but what happens when you need a car loan and lenders ask about your credit score?

That’s when you’ll wish you had listened to old Samuel Jackson.

To get approved for an auto loan, mortgage, or any line of credit for that matter, you will need a credit score, and credit cards are the easiest way to get one. Show lenders you will use credit responsibly – pay off credit cards in full at the end of every month – and banks, credit unions and even your parents will fall all over themselves to lend you money.

Know These Credit Card Terms

But before you accept the next Visa or American Express offer you get in the mail, there are some financial terms you need to be familiar with so you’re not in over your head before you make your first purchase.

Annual Fee – A fee assessed to certain credit card accounts each year for the privilege of owning the card. It is most common with high rewards cards. Unless you’re sitting on a gold mine, you do not want a card with an annual fee.

APR – Stands for Annual Percentage Rate. It is the interest rate you pay on whatever balance you carry over from one month to the next. Calculating APR is a nightmare for anyone not a math major. The best advice is to pay off credit card debt at the end of every month and you’ll never have to worry about APR.

Cosigner – Someone who agrees to pay another person’s debt if he/she defaults. A cosigner is one way for you to start your credit card life with a higher credit limit.

Credit Limit – The maximum amount of money the card holder can charge on his/her credit card.

Current Balance – The total amount of money owed on a credit card during the current billing period.

Grace Period – The interest-free time between the statement end date and the payment due date. Federal law says it must be at least 21 days.

Introductory Rate – Also known as the teaser rate, it is the initial APR offered by a credit-card issuer to entice new customers to sign an agreement. It is much lower than the actual APR, and it must be offered for at least six months, but usually runs for 12-18 months.

Minimum Payment – The lowest amount a cardholder can pay to avoid late fees and maintain good credit. It is usually 2% of the balance owed.

Penalty Rate – The interest rate a credit-card issuer will charge for violating the terms and conditions of the signed agreement. It is most commonly applied to late payments. It is much higher than the APR.

Statement Balance – The amount of money the cardholder owes the credit-card issuer for purchases made the prior month. Cardholders will avoid interest by paying off the statement balance each month.

Steps Toward Owning a Credit Card

Once you become familiar with terms associated with credit card usage, it’s time to take the first steps toward actually owning one.

Becoming an authorized user of a credit card is a good place to start building credit. An authorized user is added onto an existing account, usually a parent’s account or someone you trust. You use the credit card as if it were your own, but you aren’t legally responsible for the debt. The owner of the card still pays off the balance each month.

This gets the ball rolling on your credit history, but won’t give you the credit score you’ll need for major credit situations like a home or auto loan. Credit agencies want to know that you are responsible with money, which means they want to see your name on the card and you pay the bill. A secured credit card is a good step in that direction.

Secured credit cards are backed by an initial cash deposit, which is refundable after closing the account. The credit limit is usually equal to the deposit, so a $500 deposit will give you a $500 limit. If you pay it off on time each month, you should have a good enough credit score to apply for an unsecured credit card in less than a year.

An unsecured credit card is the traditional card you’ve heard about. It is essentially a loan from a card issuer that you must pay back each month, hopefully in full. These are the cards with the perks, but be careful before diving in. You want a card that will save you money, not cost you money. It’s important to evaluate your spending habits and prioritize each feature. Rewards are great, but if you carry a balance each month, then all that cash back will be eaten up by the interest you pay every month. You should also understand the consequences of stopping your credit card payments – they are severe.

Millennials on average have $5,808 in credit card debt. That adds $75 in interest to your bill every month, which likely is far more than you will earn in perks.

Which Reward Makes Sense: Cash Back or Travel?

There are two types of rewards for credit card users: cash back and travel. The type of reward that is right for you depends on your lifestyle. If you plan to travel, then look for cards that offer miles or points for airfare and hotels. If you just want to save money, the easiest route is cash back.

Figure out which reward is better for you, then research the cards that offer the best terms for receiving that. Here is a look at a few candidates worth investigating:

Secured Cards:

The Discover it® Secured Credit Card:

• Minimum deposit: $200
• APR: 23.49% variable APR
• No annual fee
• Rewards: 2% cash back at restaurants or gas stations (up to $1,000 in combined purchases each quarter). 1% cash back on all other purchases
• Perks: Get a free FICO ® Credit Score on monthly statements

Capital One® Secured Master Card®:

• Minimum deposit: $49, $99 or $200 based on credit history yields $200 credit limit
• APR: 24.99% variable APR
• No annual fee
• No rewards

Citi® Secured Master Card®:

• Minimum deposit: $200
• APR: 23.24% variable APR
• No annual fee
• No rewards

Unsecured credit cards:

Discover it® Miles:

• APR: 11.49%-23.49% variable APR
• Introductory APR: 0% for 14 months
• No annual fee
• Rewards: 1.5 miles/dollar or $1/100 miles cash back

Chase Freedom®:

• APR: 15.49%-24.24% variable APR
• Introductory APR: 0% for 15 months
• No annual fee
• Rewards: 5% cash back (up to $1,500 in combined purchases) for bonus categories each month. 1% cash back on all other purchases
• Bonus: $150 after spending $500 in first 3 months of account opening

Capital One® QuicksilverOne® Cash Rewards:

• APR: 24.99% variable APR
• $39 annual fee
• Rewards: 1.5% cash back on every purchase