In today’s fast moving world, it is almost impossible to do business without using credit cards. Even the smallest transactions are made easier and faster by having a credit card. Our introduction to credit cards will help you compare credit cards, their offerings and find the right online application forms. Let’s now go through the basic characteristics of this small plastic card and its operation.
What is a Credit Card?
According to the official definition, a credit card is:
‘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.’
Therefore, whenever you charge to your credit account, there is a debt you must settle or interest will be charged on the remaining balance.
Advantages and Disadvantages of Credit Cards
The greatest advantage a credit card can offer you is the possibility to buy products or have access to services you might not be able to afford if you had to pay by cash.
The usual period of time set for settling your debts is 30 days. If the balance is paid off in time, no interest will be charged on the loan. Unfortunately in practice very few are able to pay back the borrowed money, which leads to some of the disadvantages we are going to examine.
Any debt that is not paid off until after the end of the grace period will be charged interest, which varies according to the terms of each card-issuing company. If that wasn’t enough, people tend to go on with their purchases while the interest rate keeps on increasing until it reaches such a high level, that it might even take several years for people to be able to pay the card off, if at all possible.
The fact that we receive letters on a daily basis offering preapproved cards inevitably leads us to imagine the whole process as something incredibly easy. But before jumping at the chance for a new credit card to use, take a look at all the credit requirements. You may discover they have serious penalties, sky-high rates and annual charges you have to pay regardless of usage.
If you wish to receive the best rate without any additional charges, remember credit card companies will carefully go through your credit history, seeking information that can prove your reliability as a borrower. If you are a responsible user, chances are high that you will get a favorable interest rate from the credit card company. On the other hand, late payments and unsettled debts will only work against you.
Even though credit cards can be of great help in certain situations, it is easy to start using them irresponsibly. To avoid making such a mistake, plan in advance what you will use your card for. If used with prudence, they can significantly improve your standard of living.
I applied for a “bad credit” credit card when I was trying to rebuild my credit to purchase a home. I applied for a credit card from a nationally recognized company.
I was asked to deposit at least $200.00 into a savings account, which would act as security against the available balance. I initially deposited $400.00 so that I would have a credit limit of $400.00. My interest rate is 22.90% and I have an annual fee of $29.00.
The advantages of having the card is that I can rent cars and make travel arrangements and of course it helps build my credit when payments are made on time.
The disadvantages are the fees. Your payment must be posted to your account on the due date to avoid late fees. Also, there is a $35.00 over limit fee. If a card holder had a credit limit of $200.00 and an available balance of $198.00 and the card holder paid late, the card holder would get a $17.00 late fee and a $35 dollar over limit fee.
I think it is a good idea for people who are looking to rebuild their credit to apply and use these cards, but I would suggest they only use them for small purchases such as gas, and pay off the full balance every month. Then having the card would actually help your credit score. I would do it again, but only to if had to rebuild my credit.
Posted by: Nadia
Learn more about credit cards and your credit score with these related articles:
All about Credit Cards … a series of articles on choosing credit cards, how to evaluate them and where to get them, quickly and easily!
Your Credit … your ratings, scores and protecting your credit.