Credit Cards, Debit Cards & Building Credit Hat

Opening a bank account is just one part of managing money while traveling. To gain some financial freedom in the U.S., it is equally important to understand the nuances of debit and credit cards and use them smartly.

Debit Cards

Linked to your checking account in real-time, thus as soon as you pay, money is deducted.

Safer than cash and can be used almost everywhere.

Credit Cards

You are allowed to borrow money up to a ‘credit limit’ and, while it is important to pay it back later, it does not touch your bank account.

You are able to establish a record of credit, which is necessary to obtain a loan, rent a property, or get a mobile phone on contract.

My first U.S. credit card had a limit of $5000, which I only used to purchase small items like books and coffee, and paid it off every month in full.

How to Build Credit the Right Way

Start off with a small amount. Get yourself a student credit card or a ‘secured card’, which needs a set deposit.

Pay at least the minimum repayment amount, but to avoid interest, you should pay the full balance every month.

“Don’t use more than 30 percent of the available credit limit”.

To check credit reports means checking your score on sites like AnnualCreditReport.com which is free.

To illustrate the point, a friend went over his credit limit, $1,000, and said, “I’ll pay later.” He had no clue the fees would be late and the interest would be high and his credit score would suffer. This is a long slow process.

Things You Shouldn't Do

Treat credit cards like cash.
Any payments you don’t take, no matter how small the score, can and will impact your score.
Getting too many cards too quickly shifts the average account age down.

Best practice is to get a credit card for a monthly subscription, plus a debit card for the rest, and track all expenses. This will help you build credit and manage spending better.