What Is A Credit Card?
Whatever you charge to your credit card has to be paid back -- within the credit cycle -- or an interest amount will be applied to the remaining balance.
Here's the dictionary definition of a credit card: "A card which can be used to obtain cash, goods or services up to a stipulated credit limit. The supplier is later paid by the credit card company, which in due course is reimbursed by the credit card holder, who will be charged interest at the end of the credit period if money is still owing."
Pros and Cons of Credit Cards
The obvious advantage in using a credit card is that it allows you to purchase goods or services that you might not be able to pay for immediately. The credit cycle of most cards is usually about 30 days. If the money is paid back in that amount of time, there is no interest owed. Much like an interest-free loan, this sounds good in theory. However, the disadvantage here is that most Americans don't pay off their balances on a monthly basis.
When using credit cards, an important factor to remember is any amount that isn't paid off within the monthly cycle will be subjected to an interest charge. That amount of interest -- depending upon your balance and the rate charged by the specific card issuer -- could be huge. Also, many people will continue to charge things to their card, and the balance and interest keeps growing until they have no hope of ever paying off the card by only making the minimum payment. Most of us know someone who has been in this situation, as it is a very common scenario.
The Rewards of Good Credit
It's more than likely that you get a pre-approved credit card application in the mail every few days. Although the credit card companies make it sound easy, before you accept one of their generous offers, read the fine print. Many of these promotions come with hidden penalties in the guise of high interest rates and annual fees.
In order to get the best possible interest rate -- with no additional fees - you'll need to give the credit companies what they're looking for in your credit history. Being responsible with your credit and paying your bills in a timely manner will encourage the credit card company to reduce the amount of interest they will charge you. However, outstanding loans and too much available credit will work against you.
Since credit cards can easily get out of hand, before applying for one decide in advance what you plan to use it for. Credit cards can be great for emergencies and used with discretion, they can give you buying power and economic flexibility.
|
