[0:00] so if you're a beginner with credit
[0:01] cards it can be exciting with all the
[0:03] possibilities to get sign up bonuses
[0:05] cash back points and a bunch of other
[0:07] cool things but the truth is that as a
[0:08] credit card beginner that's also the
[0:10] most dangerous time for you because
[0:12] there's plenty of ways that you can
[0:13] easily slip up and make some common
[0:15] mistakes that have some pretty bad
[0:16] consequences these consequences include
[0:18] things like getting into high interest
[0:20] credit card debt big drops in your
[0:21] credit score and some other general
[0:23] struggles with money that many people
[0:24] could have avoided that's why in this
[0:26] video we're gonna go over the five
[0:27] credit card lessons that beginners need
[0:29] to learn because these five key lessons
[0:31] can help anyone to get the positives out
[0:33] of credit card usage without any of
[0:34] those bad things that some of you might
[0:36] be afraid of so as always let's not
[0:38] waste any time here and just get right
[0:39] into it make sure to go ahead and tap
[0:41] the like button down below and subscribe
[0:42] as well to get this video pushed out to
[0:44] more people but this first lesson that i
[0:46] want to talk about here is easily the
[0:47] top thing that many people skip over
[0:49] even though it's so important and that
[0:51] lesson is to have an emergency fund in
[0:53] place when using credit cards now i know
[0:55] this might sound boring but hear me out
[0:56] because the reason for having an
[0:58] emergency fund is simple for the most
[1:00] part we all have a good idea of what we
[1:02] expect to spend money on each month when
[1:03] it comes to expenses like rent groceries
[1:06] gas and other typical things like that
[1:08] but there's also many other unexpected
[1:09] expenses in life that are guaranteed to
[1:11] pop up that we overlook in our budgets i
[1:13] know that for me in the past i've had to
[1:15] randomly pay several hundred dollars to
[1:17] get new tires for my car or maybe a
[1:18] couple hundred dollars to take my cat to
[1:20] the vet just things like that that cost
[1:22] extra money that i didn't plan to spend
[1:24] so because of those unexpected expenses
[1:26] i've made it a priority over the past
[1:28] few years to build up an emergency fund
[1:30] of six months worth of estimated
[1:32] expenses in a savings account that way
[1:34] i'm prepared if a random expense pops up
[1:36] i can pay with my credit card to get
[1:37] points but then i pay off that balance
[1:39] immediately because i have the
[1:40] flexibility to do that now unfortunately
[1:42] that's not what everyone does because
[1:44] for most people that don't have those
[1:45] extra cash savings set aside they still
[1:47] might use a credit card to pay for those
[1:49] unexpected expenses however they might
[1:51] only be relying on future cash flows to
[1:54] pay off that credit card balance now
[1:55] under normal conditions that might work
[1:57] if you have a rough estimate of what
[1:58] your income minus your expenses will be
[2:00] each month but honestly we all should
[2:02] know that life isn't always perfect and
[2:04] things don't usually go according to
[2:05] plan i mean what if several expenses
[2:07] start adding up or you have one huge
[2:09] expense that costs you several thousand
[2:11] dollars or what if your income goes away
[2:13] or decreases for some reason when that
[2:15] happens you'll still be left with a
[2:16] credit card balance that you have to pay
[2:18] back pretty soon but with those cash
[2:19] flow issues that could lead you to make
[2:21] the mistake of paying only the minimum
[2:23] payment and carrying a balance which
[2:25] we'll get into later in this video so my
[2:27] point that i'm trying to make here with
[2:28] this first lesson is that life is
[2:30] unpredictable and the best defense
[2:32] against that unpredictability is by
[2:33] having some sort of a cash safety net to
[2:35] fall back on and if you don't think that
[2:37] something like this could happen to you
[2:38] just think about this millions of people
[2:40] in the u.s collectively owe almost one
[2:42] trillion dollars in credit card debt
[2:44] right i guarantee you that a large
[2:46] percentage of those people in credit
[2:47] card debt were just like you and me when
[2:49] they signed up for those first credit
[2:51] cards where they didn't have the
[2:52] intention of carrying a balance ever but
[2:54] still this debt grows and grows because
[2:56] the biggest problem with credit card
[2:57] debt isn't the function of how it works
[2:59] i mean most of us do know that credit
[3:01] card debt is bad the biggest problem
[3:03] with credit card debt mostly has to do
[3:04] with our own behaviors around how we
[3:06] handle our money and manage risk based
[3:08] on our own lives and our own experiences
[3:10] so play it safe and prepare for the
[3:12] worst because you don't want to ever
[3:14] have to turn to high interest credit
[3:15] card debt financing as your only option
[3:17] to pay for unexpected expenses now next
[3:20] for lesson number two this is directly
[3:22] related to what we just talked about but
[3:24] it's more of a mindset shift for people
[3:25] and that lesson is to treat your credit
[3:27] card like a debit card so you may have
[3:29] heard me or others on youtube say
[3:31] something like this before but it really
[3:32] is the right way to think about credit
[3:34] cards too many times i'll see people get
[3:36] a new credit card and they'll see that
[3:37] they have this new credit limit of maybe
[3:39] five thousand dollars over here so they
[3:41] say to themselves that's five thousand
[3:42] dollars of the bank's money that i can
[3:44] use for whatever and then i'll just
[3:45] worry about paying it back later but the
[3:46] mindset shift that i had early on was to
[3:48] almost forget about that credit limit
[3:50] for a minute and pretend that whatever
[3:52] credit card i was holding said debit on
[3:54] the front instead now normally with an
[3:56] actual debit card that card is linked to
[3:58] your bank account so that any time you
[3:59] swipe it to make a purchase the money is
[4:01] simply subtracted from your bank account
[4:03] to pay that means that without
[4:04] considering overdrafts in order to use a
[4:06] debit card you actually need to already
[4:08] have that money in your bank account so
[4:10] the transaction can go through now with
[4:12] a credit card we're involving a third
[4:14] party with the credit card issuer and
[4:15] like i said a lot of people view this
[4:17] like they're using someone else's money
[4:19] with that credit limit but i've never
[4:20] really looked at it like this i've only
[4:22] looked at my credit card as basically a
[4:24] substitute for my debit card by making
[4:26] sure that i've already got plenty of
[4:28] cash set aside in my bank account before
[4:30] i use my credit card for anything and
[4:32] this goes back to the whole emergency
[4:33] fund thing i think it's a good idea to
[4:35] have some money set aside in a savings
[4:37] account for emergencies along with some
[4:39] money set aside in a checking account to
[4:41] pay certain bills and to pay off credit
[4:42] card balances so because i keep several
[4:44] thousand dollars in cash in my bank
[4:46] accounts that i can easily access it
[4:48] doesn't matter if i have a 100 trip to
[4:50] the grocery store or i need to make an
[4:52] 800 tire replacement i know that i can
[4:54] use my credit card to pay for those
[4:56] things because i can pay off that credit
[4:57] card balance whenever i want and because
[4:59] of that i get a few benefits by simply
[5:01] substituting my debit card for my credit
[5:03] card as my preferred method of payment
[5:05] first i earn points or cashback that i
[5:07] can put towards my travel expenses that
[5:09] way i travel almost completely for free
[5:11] i also have increased my credit score
[5:13] pretty quickly so that now it sits in
[5:14] the high 700s because i've learned the
[5:16] importance of payment history and credit
[5:18] utilization those are two things that
[5:20] i'm gonna get into in just a minute as
[5:21] well because in this video those things
[5:23] are so important for beginners
[5:25] especially to understand and
[5:26] additionally i don't pay any interest
[5:28] from credit cards because i pay off my
[5:29] cards in full each month which leads me
[5:31] to lesson number three and that is
[5:33] actually to ignore the apr and minimum
[5:35] payment amount on your credit card
[5:37] statement and just pay off your balances
[5:38] in full every month now i'm not saying
[5:40] that your apr is not important because
[5:42] you should see the number and see that
[5:44] it's anywhere from 15 to 25 and that apr
[5:46] should scare you if you do carry a
[5:48] balance you want the lowest apr possible
[5:50] but as a beginner we're trying to avoid
[5:52] ever carrying a balance in the first
[5:54] place so the reason we actually want to
[5:56] ignore that apr is because that number
[5:58] is irrelevant when you pay your credit
[6:00] card's full statement balance each month
[6:02] by the payment due date when you pay
[6:03] your statement balance in full you won't
[6:05] be charged any interest so the apr
[6:07] doesn't matter it could be 1 000 for my
[6:09] credit cards or it could be 15 it
[6:11] doesn't affect me because over the past
[6:13] six or seven years of using credit cards
[6:15] i've paid off every single one of them
[6:17] on time and info now i have a full video
[6:19] here on my channel simply explaining the
[6:20] whole process for how and when to pay
[6:22] off your credit card bill which i'm
[6:23] gonna link to down below but here's just
[6:25] a few things to know first you're going
[6:27] to have a billing cycle with an opening
[6:29] date and a closing date and on that
[6:30] closing date whatever your balance is on
[6:32] that day is going to be called your
[6:34] statement balance now along with that
[6:35] statement balance you're also going to
[6:37] see a minimum payment due amount and
[6:38] that is likely going to be significantly
[6:40] lower than your statement balance you'll
[6:42] also see a payment due date which is
[6:44] typically at least 21 days after that
[6:46] closing date for this statement where
[6:48] you have to pay at least the minimum
[6:49] payment but like i said before we want
[6:51] to ignore that minimum payment amount
[6:53] because paying the minimum is what the
[6:54] credit card companies want you to do
[6:56] that way the remaining unpaid statement
[6:58] balance can carry over to the next
[7:00] credit card statement and they can start
[7:01] charging you interest at those high
[7:03] interest rates it's a common myth that
[7:04] carrying a balance helps your credit
[7:06] score but that's just not true at all we
[7:08] want to be paying the full statement
[7:09] balance instead by that payment due date
[7:11] all right moving on to credit card
[7:13] lesson number four which is about
[7:14] another thing that easily gets
[7:16] overlooked by beginners because they're
[7:17] not always aware of it and that lesson
[7:19] is to keep credit utilization low so
[7:21] payment history and credit utilization
[7:23] are the two most important factors
[7:25] affecting your credit score and credit
[7:26] utilization basically focuses on two
[7:28] things your credit card balance and your
[7:30] credit card's credit limit it's
[7:31] calculated as a percentage for each
[7:33] individual credit cards as well as
[7:35] across all cards combined and the
[7:36] calculation for this is pretty simple to
[7:38] understand you just take your credit
[7:39] card's balance and then divide it by
[7:41] your credit card limit to see how much
[7:42] of your available credit you're
[7:44] utilizing as a percentage now this
[7:45] calculation is typically done on or
[7:48] right around your statement closing date
[7:49] each month when your statement balance
[7:50] gets reported to the credit bureaus so
[7:52] for example if my credit card statement
[7:54] closed on may 15th and my balance on
[7:56] that date was 500 and my credit limit
[7:59] was 1 000 and my credit utilization
[8:01] would be reported as 50 which is
[8:03] actually too high and likely going to
[8:05] hurt my credit score now a general rule
[8:07] of thumb is to keep this percentage
[8:08] below 30 but ideally below 10 and the
[8:12] lower the percentage the better so for
[8:13] me i don't end up using every single one
[8:15] of my active credit cards every month
[8:17] but for the ones that i do end up using
[8:19] i try to keep my credit utilization
[8:21] maybe around one to two percent i'm able
[8:22] to intentionally manage this and keep
[8:24] this utilization percentage so low
[8:26] because like i said that calculation is
[8:29] done and reported to the credit bureaus
[8:30] on the statement closing date each month
[8:32] so i know that if i actually pre-pay
[8:34] some of my card's balance before then i
[8:36] can get a lower utilization reported if
[8:38] we go back to my example if my statement
[8:40] closing date on my card was may 15th and
[8:42] i had a 500 balance with that 1 000
[8:45] limit i would want to prepay so that my
[8:47] utilization wouldn't be reported as too
[8:49] high so what i would do is maybe a few
[8:51] days before that on may 10th i would
[8:53] prepay an amount that would decrease my
[8:54] balance so let's say that on may 10th i
[8:56] pre-paid 490 that would bring my balance
[8:59] down to just 10 and when may 15th rolls
[9:02] around just a few days later and my
[9:03] statement closes that 10 balance would
[9:05] get reported not 500 so as far as the
[9:08] credit bureaus know from the information
[9:10] that they receive on my closing date my
[9:12] ten dollar statement balance on a one
[9:13] thousand dollar limit is only a one
[9:15] percent credit utilization and that
[9:17] looks like i'm being way more
[9:18] responsible with the credit that i've
[9:19] been given now i usually don't get this
[9:21] exact with pre-paying my credit cards
[9:23] because now at this stage in my credit
[9:25] journey my credit limits are much higher
[9:27] than just 1 000 which gives me a lot
[9:29] more room to spend without having to
[9:31] worry that much about what my
[9:32] utilization is but as a beginner the
[9:34] challenge is that you usually get
[9:35] started with a low credit limit whether
[9:37] that's a limit on a secured or unsecured
[9:40] card so maybe you only have a secured
[9:42] credit card as your first card right now
[9:44] and you had to put down a 250 deposit to
[9:46] get a 250 credit limit to start off that
[9:49] doesn't give you much room for spending
[9:50] a lot when thinking about that card's
[9:52] credit utilization so the best way to
[9:54] use a secured card or any card with a
[9:56] low credit limit in a scenario like this
[9:58] would be to either use that only for a
[10:00] small purchase of a few dollars each
[10:02] month and then pay it off after the
[10:03] statement closes but before the payment
[10:05] due date or if you spend maybe a hundred
[10:07] dollars on something you could make a 95
[10:10] payment partially pay down that balance
[10:11] before the statement closing date that
[10:13] way a much smaller credit utilization
[10:15] gets reported which looks good for your
[10:17] credit score early on as a beginner so
[10:18] with credit utilization just be aware of
[10:21] how that's calculated what your balance
[10:22] is what your credit limit is and what
[10:24] your statement closing date will be
[10:26] because then you can manage what
[10:27] utilization gets reported to boost your
[10:30] credit score all right now finally for
[10:31] the fifth lesson in this video we're
[10:33] gonna move over to payment history which
[10:35] is that other factor of your credit
[10:36] score that's so important and that
[10:38] lesson is to never miss a credit card
[10:40] payment now actually payment history is
[10:42] slightly more important for your credit
[10:44] score than credit utilization since
[10:45] payment history makes up about 35 of
[10:48] your fico score and utilization makes up
[10:50] about 30 basically payment history is
[10:52] important because future lenders looking
[10:54] at your credit report want to make sure
[10:56] that you have a strong history of paying
[10:57] back things that you owe and credit
[10:59] utilization is important because future
[11:01] lenders want to make sure that you're
[11:02] not being too risky and using too much
[11:04] of the credit that you've been given now
[11:06] luckily payment history is more
[11:07] straightforward to understand but
[11:09] there's still some hidden things to know
[11:10] that can help you to stay ahead of your
[11:12] credit cards as a beginner so back to
[11:13] your credit card statement i explained
[11:15] earlier in this video that there's going
[11:17] to be a payment due date that's
[11:18] typically 21 days after your statement
[11:20] closing date the simple thing that you
[11:22] have to do to positively impact your
[11:23] credit score with payment history is
[11:25] just remember to pay at least the
[11:27] minimum payment by the payment due date
[11:29] for it to be considered on time now
[11:31] again the minimum payment is the bare
[11:32] minimum so i do not recommend paying
[11:34] only that amount you should pay the full
[11:36] statement balance by that payment due
[11:38] date to avoid carrying a balance and
[11:40] paying interest but when you have a
[11:41] perfect 100 record of on-time payments
[11:44] that's the best outcome for payment
[11:46] history on that portion of your credit
[11:47] score now with each payment that you
[11:49] actually miss you'll start to see
[11:50] negative impacts to your score and even
[11:52] just a couple of late payments can be a
[11:54] bad thing since those are gonna stay on
[11:56] your credit report for about seven years
[11:58] a missed payment is also probably going
[12:00] to get you hit with a late fee of maybe
[12:01] 30 to 40 but if you realize that you
[12:04] missed that payment within about 30 days
[12:06] of your payment due date the credit card
[12:07] issuer is likely not going to report
[12:09] that to the credit bureaus just yet to
[12:11] hurt your credit score so just make sure
[12:13] to pay the payment as soon as possible
[12:14] and you should be fine also if you want
[12:16] to make sure that missing a credit card
[12:18] payment never happens so that your
[12:19] payment history can remain perfect
[12:21] there's a few things that i like to
[12:22] recommend that people do first you can
[12:24] set up automatic payments on your credit
[12:26] card account so that your statement
[12:27] balance gets automatically paid on or
[12:29] before the payment due date each month
[12:31] now there are two small downsides to
[12:33] this with number one being that if you
[12:34] don't have the money linked in your bank
[12:36] account already then the automatic
[12:37] payment is either going to get rejected
[12:39] or you could overdraft on your bank
[12:41] account and have to pay some fees from
[12:42] that so if you do set up payments like
[12:44] this then make sure that you always have
[12:46] enough cash in your bank account but
[12:47] downside number two is that automatic
[12:49] payments could lead you to having less
[12:51] oversight over your credit card account
[12:53] which could cause you to either
[12:54] overspend on your credit cards or it
[12:56] could cause you to miss charges that
[12:57] aren't supposed to be there that's why
[12:59] personally i just like to set reminders
[13:01] on my phone to check my credit card
[13:02] accounts on a regular basis a few times
[13:04] a month that way i make sure that i'm on
[13:06] top of everything automatic payments can
[13:08] be a good backup plan but in my opinion
[13:10] having visibility over your accounts is
[13:12] also very important so just find a
[13:14] system that works for you that way you
[13:16] don't miss any payments and once again
[13:18] pay off those statement balances on time
[13:20] and in full each month i know that keeps
[13:22] saying that but it is something to
[13:23] always remember now since this video was
[13:25] really focused on credit cards for
[13:26] beginners next you'll also want to check
[13:28] out this video over here on common
[13:30] credit card mistakes to avoid or this
[13:32] one over here that i mentioned earlier
[13:33] about when to pay your credit card bill
[13:35] but as always thank you so much for
[13:36] watching i hope you have a great day and
[13:38] i'll see you in the next one