Banking & Credit

Take control of your money

Two young women with credit card looking at digital tablet

It’s important to learn about banking and credit as soon as possible. Knowing the pros and cons of opening a bank account, which type of account to get, and how to manage credit will help you make better choices about your money. It’s never too early to set yourself up for success!

Banking Basics

When you have bank account or a credit union account, you can track your money, get help on financial questions, and watch your money grow (with certain types of accounts).

  • Checking
    Checking accounts are best for short-term, day-to-day use. They let you take cash out or pay for things using your debit card or checks. Some banks charge for opening and maintaining a checking account. Some charge overdraft fees if you spend more than what’s in your account. It’s a good idea to research which checking account would work best for you. Along with convenience, it’s important to consider fees.
  • Savings
    Savings accounts are better for the longer term. You can put money in and take money out, but unlike checking accounts, savings accounts usually limit how often you can withdraw.
  • Student accounts
    Many banks and credit unions offer accounts for students, young adults, and children. They often have lower fees, require a lower deposit to open and maintain, and provide tools that help you learn to manage your money. If this is the first time you’re opening a bank or credit union account, a student account may be a good option.

Open a savings account

You can open your first savings account with NYC SafeStart. Participating banks and credit unions across all five boroughs offer SafeStart accounts that feature:

  • no overdraft fees
  • no monthly fee if you keep your account above the minimum balance
  • a minimum balance of $25 or less
  • an ATM card for withdrawals

Opening a bank account helps you get payment faster with direct deposit if you are eligible for an Economic Impact Payment or IRS tax refund.

Learn more about NYC SafeStart accounts

Credit Basics

Credit is money that you borrow to buy something now and pay back later. Sounds great, right? It can be, but only if you understand the risks.

When you pay for something with credit from a bank, the bank charges you “interest” on the money they lent you. If you don’t pay back what you borrowed right away, the interest keeps adding up. Using credit carelessly can create high debt and a low credit score—which makes it harder to get credit again.

Credit Cards

A credit card looks like a debit card but is very different. A debit card connects to your checking account and draws on the cash you have in that account. A credit card lets you pay for things with money that a credit card company loans you. You are expected to pay the credit card company what you owe (your “balance”) every month.

  • Credit limit
    This is the maximum amount of money you can spend in a month. Your credit limit depends on your financial history and is usually lower for new credit card holders. Even so, it’s a good idea to not spend all of your credit each month. Keeping your credit utilization ratio (the amount you spend on your credit card divided by your total credit limit) under 30% will help you achieve a higher credit score.
  • Checking your statement and paying the balance
    When you use your credit card, you have to pay it back each month to avoid late fees and penalty interest rates. At the end of each billing cycle you can pay the full balance or anything at or above your minimum payment (which is a smaller amount set by the credit card company). Be aware that if you only make the minimum payment or pay anything less than the full amount, your balance will carry over and you will be charged interest, which adds on to what you owe. To avoid interest charges, try to pay the full balance whenever you can.
  • Annual percentage rate (APR)
    APR is related to interest―the percentage you’re charged for borrowing money. The interest you pay on a certain month’s balance is usually a fraction of the APR multiplied by the balance you owe. If you carry a balance from month to month, you’ll rack up new interest charges each month. You can avoid interest if you pay the full balance on your credit card statement every month.

Credit Score

Credit is borrowed money, but it’s also a rating of how financially responsible you appear to be. Credit is expressed as a score between 300 and 850. Building up credit is a good idea since it shows banks, landlords, and lenders that they can trust you. On the other hand, having a low credit score can stop you from getting loans, renting certain apartments, or getting other opportunities.

Before you open a line of credit such as a credit card, make sure you understand everything that affects your credit score. This includes (but is not limited to):

  • whether you pay your balance on time every month
  • how much of your credit limit you use (try not to use more than 30%!)
  • how long you’ve had a line of credit open
  • whether you’ve recently applied for new lines of credit
  • the credit mix you have

Get a free credit report

A credit report shows your credit score but also shows the accounts that make up your score. By law, you can get a free credit report every 12 months. Many different websites advertise free credit reports but Annual Credit Report is the only official one. Check your credit report every year to make sure no errors are dragging down your score.

Ask for your credit report