A Guide to Credit Cards and Scores | Ashley Guapo
By: Ashley Guapo
Used correctly, a credit card is one of the best tools young adults have for building a strong credit history. The key phrase there is "used correctly". A credit card can build your financial foundation just as easily as it can undermine it and the difference usually comes down to a handful of specific mechanics and habits that most people were never actually taught.
A credit score is a three-digit number, ranging from 300 to 850, that lenders use to determine how likely you are to repay debt. For the commonly used FICO scoring model, five categories of information are considered:
Payment history. Whether you've paid your balances on time. This is the single biggest factor in your score, and even one late payment can hurt it.
Credit utilization. How much of your available credit you're using. Keeping utilization somewhere in the 10–30% range is generally considered healthy.
Length of credit history. Older accounts tend to help your score, which is the main reason closing a credit card can cause your score to dip.
Credit mix. Whether you have a healthy mix of debt types, such as credit cards alongside installment loans (mortgages, auto loans, etc.).
New credit applications. Applying for several credit cards in a short window can temporarily ding your score, since each application triggers a hard inquiry.
A credit card lets you borrow up to a set limit, and each billing cycle you can either pay off the balance in full or carry some of it forward. If you carry a balance from one cycle to the next instead of paying it off, you start paying interest on whatever remains from the previous cycle. Most cards come with a grace period, meaning if you pay off your full statement balance by the due date, you won't be charged interest on your purchases at all. Once you carry a balance, that grace period goes away and interest starts adding up.
The interest rate on unpaid balances is called the APR, or annual percentage rate. Depending on the card, APRs typically could range between 18%-30%. If you can't pay your balance in full, you can make the minimum payment, the smallest amount you're required to pay by the due date to avoid a late fee. It's tempting to rely on the minimum payment since it avoids the late fees but doing so lets interest compound on the remaining balance, which can turn a manageable purchase into a much more expensive one over time.
One of the best perks of having a credit card is the rewards it can offer. Most cards provide some combination of cash back, points, or airline miles, and certain cards suit certain spending habits and lifestyles better than others. Keep in mind that many rewards cards charge an annual fee, so that fee is only worth paying if you're redeeming the rewards you earn. It's also worth noting that rewards shouldn't drive your purchasing decisions. Justifying a large expense because points covered part of it, or because you're earning cash back on it, doesn't mean it's a good idea.
Travel Cards
If you love to travel and are just getting started with rewards cards, one example is the Chase Sapphire Preferred. You earn points on everyday spending as well as travel expenses such as flights and hotel stays. The Chase Sapphire Reserve is also another example offering 8x points on Chase Travel, 4x on flights and hotels, and 3x on dining. If you're more experienced with credit cards and travel often enough to want airport lounge access and richer ongoing travel credits, some examples are the premium cards like the Capital One Venture X or American Express Platinum Card. The higher fees but may be worth it for frequent travelers.
Cash Back
For those who are looking for a simple credit card but still wanting some benefits, this is an option. Some examples are the Wells Fargo Active Cash or Citibank Double Cash, offering 2% back on every purchase. There is also a credit card that gives you cash back only on a specific category of spending, so it is important to look out for that.
Business Owners
It is important for some who are self-employed and business owners to separate their personal and business-related spending. This is especially helpful for bookkeeping and receiving rewards for business related categories. Cards like the Ink Business Unlimited or Capital One Spark Cash are options for business owners who are also looking for cash back and general reward points.
Paying Down Existing Debt
There are 0% APR balance transfer cards for those carrying high balances and interest rates on other credit cards. This is an impactful way of reducing costs of debt, only if you have a plan in place to pay off the debt within the specified period. Cards have terms set where you have 0% APR for a specified number of months. There is a charge to transfer the balance, which can range from 3-5% of the balance. These are really only effective if you are dedicated to sticking to a repayment plan and can avoid incurring balance on other cards.
There isn't a straightforward answer to what the best credit card is. It all depends on your credit experience, what you spend on, and what benefits you're looking to optimize. But there is a straightforward answer to how to use a credit card: pay it in full at the end of every cycle and keep balances low relative to your available credit. Once that foundation is in place, you can start layering cards that reward the categories you actually spend in.
And for those already carrying a balance, don't be discouraged! It's daunting to open the banking app and see a large number staring back. But once a repayment plan is in place, start tackling it one payment at a time. It's entirely possible to pay it down and come out the other side with a stronger credit foundation than you started with.
Gerber Kawasaki Wealth & Investment Management is an investment advisor located in California and is registered with the Securities and Exchange Commission (SEC). Registration of an investment advisor does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. Gerber Kawasaki only transacts business in states in which it is properly registered or is excluded or exempted from registration requirements. Additional information about the firm is available on the SEC’s Investment Adviser Public Disclosure website at adviserinfo.sec.gov.
Ashley Guapo is a Financial Advisor of Santa Monica, California-based Gerber Kawasaki Inc., an SEC-registered investment firm with approximately ~$4.78B billion in assets under management and assets under advisement as of 06/30/26. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This material is for general information only and is not intended to provide specific tax or investment advice. Consult your tax professional regarding your individual situation.To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss. Readers shouldn't buy any investment without doing their research to determine if the investments are suitable for their situation. “All investments involve risk and one should consult a financial advisor before making any investments. Past performance is not indicative of future results."
