Credit Cards

Credit Cards

What are credit cards?

If you have ever bought something at the store (or especially online), you have probably heard of credit cards. They are plastic cards that contain a lot of information – with a credit card, you can buy a variety of different goods and services, even if you don’t have the required amount in your bank account. Many people consider credit cards to be powerful and convenient tools, but they must understand how to use them responsibly.

Should you get a credit card?

Credit card advertisements (and even physical credit cards sent in the mail) reach almost everyone in America. However, there are many factors to consider, especially if they are not financially ready for it. Credit cards can certainly be helpful when you would like to buy particularly expensive items. However, ensuring that you can pay back the money that you spend with a credit card is crucial. If you cannot, you may get in serious trouble.

When You Need a Credit Card

Some people, however, can seriously benefit from having access to credit cards. They can use them to make secure and refundable purchases online, to gain rewards from certain retailers, to keep their money a little safer than in the form of cash, and to build up their credit score. Credit cards are often the only way to pay for some services as renting a car or reserving a hotel because they protect against possible misconduct.

Credit Explained

Credit cards allow you to purchase something that you may not immediately have the money for by borrowing money from the bank that you can pay back either at once, or slowly over time. This concept is referred to as “credit”. This credit is used to slowly build up your credit score, which is a number that is assigned to you and that can be improved by doing different things (such as paying your bills on time). This score is important, because it shows future lenders how reliable you are in paying off your loans. This can impact whether or not you can receive loans on future credit cards, a car, or even a house.

When you choose a credit card that operates through a bank or other money lender, you will also receive a different interest rate depending on the program that you choose and your credit score. This rate is the additional amount of money that you must pay to the money lender for each purchase that you make with a credit card. For example, if you use a credit card to buy a new canoe for $600 but only have $400 in your bank account now, you can pay off the cost of the canoe over a longer period of time, and in smaller chunks. However, by the time you have finished paying off the canoe completely, you will have paid more than $600 because of the interest rate that you were paying along with the cost of the canoe.

This proves that while credit can be a very valuable and convenient tool if used properly, it can also be dangerous, if you are not careful in considering how you will pay off your credit card bills. Multiple items and services purchased with a credit card can mean multiple additions to your monthly bills and depending on the interest rate that you get, you may end up spending more on the ability to use the credit card, than on some of the purchases that you would like to make with it. This is why understanding your budget is such a critical step in deciding whether or not to get a credit card.

How to Qualify For and Receive a Credit Card

Even if you have received credit cards in the mail asking you to sign with them to receive the best deals on products, those cards still require qualifications. The first qualification for obtaining a credit card is that you must be 18 years of age or older before applying. Credit card companies also only accept and activate credit cards for those people who they believe will be good, responsible credit users. They determine this by factoring in your credit score with other identifying information that you provide.

You can check your own credit score online, usually for no cost, using one of the three credit reporting agencies or a third-party site. You can also use this information to determine what aspects of your credit history may need to be addressed before a credit card company will be willing to loan to you. If your credit report shows a bad history of repaying loans, you may need to go backwards and fix some of your past mistakes with other money lenders. If your credit report shows a lack of credit history, you can start your credit experience small by receiving and paying off lines of credit associated with individual stores’ credit cards. This way, you can slowly work your way up to having the credit history and score required to get a credit card with a higher spending limit. However, if your credit report shows good credit history, you should be all set to receive the credit card that you want.

Credit Card Account Types

The final decision that you must make when choosing what kind of credit card to get is how you want to pay for your credit once you use it. The first method is to get a “revolving” agreement – this is usually used by banks and department stores, as it involves letting the customer choose between paying their balance in full each month, or extending their balance over a longer period by only paying a portion of it each month.

The second type of credit card account, the “charge” agreement, is used mostly by charge card companies and charge accounts set up with businesses. It involves having the customer pay their monthly balance in full each month, with no associated interest charges on the loans. This is similar to a debit card, but it still allows for card users to borrow funds.

The final type of account is the installment agreement. This is used mostly by car dealerships, furniture stores and home appliance stores, because it asks the customer to only pay for their product in small payments over a set period of time. Some companies may penalize you for paying off your account early.

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