Credit Cards

Credit cards are a convenience. Sometimes there are emergencies

and we don’t have the cash to pay right away. Other times you may

want to make an airline or hotel reservation and you will need a

credit card. With credit cards, you can borrow money to pay for

items now and will have the luxury of paying the money back in

small installments over time.

  • Credit cards are not free money; the price to borrow money is called interest. That means for each month you don’t pay off the balance, you are charged a percent of the balance as interest which is added to your balance.  Interest rates can vary and range from 0% to 25%!

 

  • If you abuse your credit cards you could wind up in a lot of debt which will hurt your credit rating. A low credit rating may prevent you from obtaining automobile or home loans.Use credit cards sparingly - if you cannot afford to pay for a vacation or major purchase with cash, you shouldn’t be charging it.  If you can't pay for it now, how will you pay for it later? Use credit cards for "needs" not for "wants". 

 

  • Building credit takes time. First get a bank account. Second, apply for a credit card for a store like Target, Old Navy, or Pep Boys. Because you can only buy their merchandise with their credit card, these stores are more likely to give you a credit card than Visa, Mastercard, or Discover. Buy one item on the card each month and when the bill comes, pay it off entirely so you do not carry a balance. No balance = no interest. Do this for a few months and your credit score will improve.

 

  • Credit scores and ratings will affect how and if banks will loan you money. Whether it is for a car loan or for a credit card, financial institutions use these scores to determine under what rates and conditions they will loan you money: 

    • If you have a good credit score, you will get low (good) interest rates and better terms.

    • If you have a poor credit score, you will be charged higher (bad) interest rate

Your Credit Score is Determined By:

What Does Your Credit Score Number Mean?


 

  • Beware of fees - like with bank accounts these can include “annual membership fees” or “late fees”. Your credit card has a credit limit that you can charge, but if you charge more than that, you will get an “over the limit” fee.  Recent laws have been passed to protect consumers from high fees, but it is your responsibility to read over the credit agreement with the lender.

 

  • Be careful to read all of the terms of your credit card. One offer that 'gets' people is the "Introductory Rate Offer". This means that you'll have a nice, low rate for the first year, and then the company will raise the interest rate much higher.

  • Be careful to read over your monthly statement. Your credit card company will send you a monthly statement. Be sure to go over it and verify all the charges so you are not paying for something you didn't buy.

 

  • Keep your credit card in a safe place. If it is lost or stolen it is your responsibility to notify the credit card company as soon as possible to prevent yourself from being liable for what a thief may charge on your card.

  • Some credit cards offer "perks" to get you to use their card. Some perks include:

    • Low Interest Rates

    • Airline Miles

    • Cash Back Bonus - this perk only works if you do not carry a balance on your credit card and pay it off in full every month. If you carry a balance, then the interest you are charged cancels out any 'cash back bonus' you might earn.

  • Pay it off. Your credit card company will suggest a "minimum payment" with your bill. You should always try to pay off your credit cards as soon as possible, but if you can't make sure you pay more than the minimum. If you only pay the minimum, it will take forever to pay off your credit card:

Credit Card Resources:

11 Things You Should Know Before You Get a Credit Card