Credit cards are a valuable financial tool in helping you spread out large purchases over time, cover the cost of an emergency and earn the trust of lenders in the future when borrowing money for your first home or vehicle.

For many Americans, the credit-building journey begins in their teen years and continues throughout their lives as they learn to use credit cards responsibly and build their credit. The key is to start early and adopt responsible credit habits that will pay off in the long run.

Credit Card
Key statistics on first-time credit cards
  • Average length of time it takes to get approved for a credit card: 30 days or less
  • Average first-time credit limit: $500 – $1,000
  • Average credit card approval rating for consumers with no credit: under 40%
  • Average credit card balance: $5,221
  • Average credit card utilization ratio: 25%
  • Percentage of payments made with credit cards: 28%
  • Percentage of college students with at least one credit card: 57%
  • Average credit card debt for college students: $1,183
  • Percentage of college students who make the minimum payment each month: 44.7%

Why do I need a credit card?

Credit cards aren’t just a spending tool. They’re essential tools for many consumers who hope to build a responsible, lengthy credit history and make larger purchases throughout their lives. Credit cards give consumers extra purchasing power and the ability to break down a large purchase into a smaller, more manageable monthly payment.

An added benefit is the fraud protection a credit card can provide that a debit card may not. In fact, the major credit card networks (Visa, Mastercard, American Express and Discover) give cardholders a $0 fraud liability guarantee. Here’s a look at how credit card usage varies across different consumers.

  • Number of credit cards in use in the U.S.: 1.06 billion
  • Average number of credit cards per adult: 3.84
  • Average APR for credit cards in the first quarter of 2022: 15.13%
Pros of having a credit card Cons of having a credit card
Immediate access to funds Easy to rack up credit card debt if you are not careful
Helps you build credit Can hurt your credit score if not used responsibly
Ability to spread out large purchases over time High interest rates if you carry a balance
Ability to earn cash back and rewards Possible annual fees, cash advance fees, overdraft fees and foreign transaction fees
Greater fraud protection than debit cards Vague approval requirements
Possible insurance benefits, including rental car and travel insurance Can cut into your disposable income if you carry high balances

There are several advantages and disadvantages to having a credit card. The most important benefit, however, is the pathway it creates toward a strong credit profile.

Why having a credit score is important

For lenders, landlords and even some employers, your credit can play a role in whether you are approved for an apartment rental, mortgage loan, job and more. This is why it’s important to protect your credit and manage it responsibly so you don’t put yourself in a position to lose out on your dream purchase down the line. Here’s a rundown of what the average credit score looks like across various generations and income levels.

Generation Average credit score
Baby Boomers 736
Generation X 699
Millennials 680
Generation Z 674
Income Average credit score
Lower Income 658
Moderate Income 692
Median Income 735
High Income 774

How does a credit card work?

Credit cards offer you a revolving line of credit to make purchases with. Each month, you’ll be expected to make a payment on your debt balance, which should not exceed the approved credit limit your issuer has offered you. As long as you continue to make payments and manage your credit responsibly, your account will remain in good standing, and you can continue to use it as needed.

The key to a successful credit journey is monitoring your spending. It’s important to be selective about your purchases with your credit card and automate your payments or set reminders for yourself to avoid late or missed payments that could hurt your credit score.

What to use your credit card on

Not every purchase should be put on a credit card. For example, an impulse buy at a cash register is something you might want to pay for in cash or with a debit card rather than credit. Paying for an item using a credit card will rack up a balance you will need to pay interest on if you can’t pay it in full from month to month.

You’ll also want to weigh whether using your credit card to cover the cost of something will earn you cash back, rewards or potential discounts. Here’s a rundown of a few instances when it makes sense to use a credit card.
Learn more: Credit card expert Ashley Parks gives her top 5 tips for first-generation credit users.

Item Why use a credit card?
Rental car Most rental car companies require a credit card in case of damages to the vehicle.
Hotel stay Hotels will often require a credit card on file to cover the cost of incidentals, and hotel cards offer hotel discounts and perks.
Home repairs or appliances Using a credit card will allow you to spread out these large purchases over time, making them more manageable.
Online purchases Credit cards offer an added layer of fraud protection that other payment methods do not.
Travel expenses Your credit card may offer rewards or discounts for travel-related expenses, as well as insurance if you need to cancel or postpone your trip.

How to apply for a credit card

Applying for a credit card is a fairly simple process. However, too many new card applications can tank your credit score. You’ll want to be selective about when and which card you apply for. Here’s a rundown of what you can expect when applying for a new card.

  • Know your credit score: Many cards have a score requirement you’ll need to meet to qualify for their card. To get the most accurate information, you can request a free copy of your credit report from each of the three credit bureaus once per year. Your credit card may also offer free access to your score. If you don’t have any credit history, you might opt for a secured credit card as a starter card while you work on building up your credit history.
  • Read the fine print: Each card’s terms will be listed in a credit card agreement. The Schumer Box will tell you the annual fee for the card you’re interested in, the APR, penalty fees and other charges.
  • Gather all of your documents and information ahead of time: Most applications will ask you for key information like your Social Security number and annual income. Have this information readily available when you set out to apply.
  • Complete your application: You have a few options for completing your credit card application. You can visit the issuer’s website, apply in person if the issuer has a physical location near you, apply over the phone or send in your application through the mail.

Types of credit cards

There are several types of credit cards that all work a little differently, have their own set of perks and cater to different consumers and their individual spending habits. Choosing the right card often comes down to which one will meet your financial needs and reward your regular spending.

For those who love to travel, a card geared toward travel rewards could be a huge money-saver. For others who love to cook and make regular trips to the grocery store each week, a card that offers cash back on grocery store purchases might be a better option. College students who are at the start of their credit journey might benefit more from a student card that rewards student expenses and good payment habits.

  • Most common type of credit card: unsecured credit cards
  • Average credit limit for people who open secured credit cards: $200 – $2,500
  • Percentage of Americans who use a travel card to offset travel costs: 70%
  • Percentage of Americans who own an airline or other travel card: 19%
  • Percentage of Americans who prefer cash back over other rewards: 41%
  • Percentage of Americans who own a cash back card: 46%
  • Percentage of Americans who own a retail card: 31%

How to avoid credit card debt

Having extra spending power may tempt you to spend more than your budget allows. For this reason, setting healthy habits ahead of time is essential if you hope to avoid accruing a balance you won’t be able to pay off. Here are a few key ways to avoid debt and credit score damage:

  • Automate your payments: A late or missed payment can result in a significantly lower credit score and extra fees and interest charges. If you tend to be forgetful, set yourself up for success by automating your monthly payments. That way, you’ll never have to worry about missing a payment and it automatically removes one task from your to-do list.
  • Keep your credit utilization rate low: Experts typically recommend keeping your spending under 30% of your total available credit. Keeping your spending below a certain threshold makes it easier to pay your balance down and shows lenders that you can manage your credit responsibly.
  • Pay more than the minimum each month: Carrying a hefty balance month to month could result in steep interest charges. Chipping away at your balance by paying a little extra will help you avoid potential charges and fees down the line.

The bottom line

Credit cards often have a bad reputation for being a gateway to overspending. However, when used responsibly, they can be the key to hitting your bigger financial goals. Before you embark on your credit journey, be sure to choose a card that meets your spending needs. Try to establish positive credit habits early on so your credit card can work for you and not against you.