Credit Cards Can Make You And Break You

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Credit Cards Can Make You And Break You

Credit Cards and Their Use Should Be Taught At School

Most folks can’t imagine going through life without being armed with a few credit cards – be it Visa, MasterCard, Discover, American Express, or whatever.

After all, they can be used at most places and any time of the day or night. They are helpful in treating the family to a vacation, taking advantage of sales or doing a little online shopping.

credit cardsCredit cards are a quick and easy way in which to purchase all kinds of good and services, and they allow you to pay for the cost over a period of time.

They can easily fit into your household budget.

However, the trick is to find the right card for you and your needs. And, this is where you need to do some research.

There are so many deals available that you may be confused by what credit card is right.

The first thing you have to understand is how credit cards work in order to choose the card that’s best for you.

It’s true that wading through all the credit card information out there can be difficult.

You may feel confused by the information. However, some things remain constant, which is that credit cards can be an easy way to pay for something but it’s only a loan that you must pay back.

It should only be viewed as a temporary solution to your financial hiccup. Anything more than that, and you need to take a good look at yourself.

If you want to learn what credit cards are and how they can help you, your household and how you can improve your credit rating and if you’re tired of getting into trouble with credit cards or have yet to”apply” for one, it’s important you learn what they can do, and how they can help or ruin you.

Here we go!

 

Credit Cards: What Are They Really?

Think of your credit card as being a loan. Pay off the loan balance completely every month, and that loan doesn’t come with interest. If you’re not able to do this, you can make monthly, but interest-charged payments. While the rates can vary, the average is currently around 19 percent.

They are the most convenient way to buy what you want or need. However, never forget that the money is a loan. You’re only borrowing it, and any debt that gets out of hand could get you into serious financial trouble.
Should You Use A Credit Card?

Don’t forget that credit cards are the fast and easy way to pay for something you want or need.

  • If you’re out shopping and find an outfit you want, a credit card will help you to get it, even if you don’t have money on hand. Use the credit card and then pay for it later.
  • If you find yourself in a must-have situation such as car repairs or new refrigerator, you can put it on the credit card and pay it off later.

Whatever the situation, there are always reasons to have a credit card. However, it’s important to remember that the kind of card you get, and the positive and negative aspects that go along with them, can differ significantly.
How Do Credit Cards Work?

When you fill out an application for a credit card, you’re asking the credit card issuer, (bank), to give you a loan. The issuer is going to review your credit history before it makes a decision about your application. If you’ve got a low credit score, chances are you’re going to be denied credit.

If you do have good credit, the bank will approve the application and set a credit limit. This credit limit is the maximum amount that’s available to you to spend. The company will send you a monthly statement that details the card transactions and how much you owe. It will also lay out the due date and minimum amount due.

Credit cards can be used to pay for something online or in a store – and used in the majority of countries in the world. Your credit card company will send you a monthly statement that lists your transactions. If the bill is paid off, you don’t pay interest. If you can’t pay it off entirely, you begin paying interest at the rate you agreed to.

If you’re not careful, it can be costly to have one and isn’t a worthwhile long-term debt solution.
Pick A Card – But Not Any Card

 

There are all kinds of credits cards out there, and your best deal is going to be dependent largely on what the card’s purpose is. For instance, if you want to do a shopping spree, you don’t need to find a card that’s got a 0 percent balance transfer.

People ought to look for deals that provide a low rate on purchases. Some cards will give zero percent for purchases for a set amount of months. This can be extremely effective to pay for a high priced item such as new refrigerator, new TV, etc. If you pay the debt off before the deal ends, you’ll pay no interest at all.

People who can’t pay their bill off in full each month would do better with low rate cards. These cards tend not to offer any introductory interest rates. Rather, they have a fairly low interest rate for as long as you need to pay the debt off.

People whose debts are relatively high on another card or who have cards with a high interest rate can save themselves money by doing a balance transfer deal. For example, let’s say you have got a $4,000 credit card debt on a 16 to 19 percent interest rate card. If you turn that balance over to a card that charges you zero percent interest for 24 months, you save yourself a lot of money on interest rates.

Reward cards are great if you plan on paying the balance off each month because the interest rate doesn’t matter. Check out cards with loyalty points or ones that have cashback for its offerings.  Some cashback cards will give you a one percent cash back each time you spend on the card. One such card that comes to mind is the 1.5 percent cashback Quicksilver card from Capital One! If you plan on to travel, consider using a card that offers airline miles for each time you use it.

There are all kinds of deals available for folks who will use their credit cards out of country and even for people who have poor or bad credit history.

Bear in mind that what credit card deals you’re offered is also dependent upon your credit history. While you may want a particular offer, your credit is going to dictate whether or not you can get the best offers or something a little more mediocre.

Should you switch your cards often to find one that suits your needs? The answer is no. Do your homework, and find a card that works for your long-term circumstances.

 

Both Sides Of Credit Cards

There are some good reasons and some negative reasons to having credit cards. In order to come up with your reasoning for it, you need to weigh the pros and cons. Is it worth getting a credit card?

Positive Points

  • Credit cards are great option to pay for goods and services without needing to put money upfront.
  • Credit cards can be used as an interest-free loan, letting your borrow”free” money.
  • When you use a credit card, the Consumer Credit Act will give you some protection for purchases you buy with it.

 

Negative Points

  • It’s not hard to run up a debt on your credit card, especially if you’re not paying it off each month.
  • You can also experience financial issues if you don’t play by the credit card company’s rules. For instance, if you miss a payment, go beyond your credit limit or pay your bill late, the company can charge you a penalty.
  • The majority of credit card companies give their best deals for folks who have a spotless credit record, meaning your application for credit could be denied.

 

A Comprehensive Look At The Positive Benefits Of Having A Credit Card

 

Borrowing Free Cash

There are some credit cards that offer zero percent interest for an introductory period. However, the standard rate is between 16 and 19 percent. If you manage your money right, you won’t need to pay a dime in interest. The majority of credit cards have an interest-free period of around 60 to 90 days with an average of 56 days. Therefore, paying your balance off before or when you get the monthly statements means you don’t pay any interest.

There are some credit cards that have incentives to encourage you to use their card – cash back, air miles, loyalty points, etc. This means using your credit card means you’re making money. It’s important to understand that these cards are great if you plan to pay the bill off each month. If not, the interest you pay is more than the reward value.

 

Protection

Some folks would rather use credit cards over cash because of the security they get. If the card is stolen or lost, you just alert the bank and the card will be cancelled. The majority of cards will provide protection for any purchase over a certain amount.  For instance, if a company goes belly up or the purchase doesn’t come in, you can ask the credit card company to give you the credit back.

Protection is also given if the card was stolen and used before you could cancel it. Bear in mind that if your credit card company finds you were negligent in losing your card, you won’t get a refund. Always keep the PIN number tied to the card in a safe place away from the card.

 

Paying The Debt Off Over Numerous Months

If, for whatever reason, you can’t pay the debt off, your credit card company will allow you to make monthly payments. However, you’ll start paying interest on the money that’s left on the card. How much interest you pay depends on the company holding the”loan”.  The average rate is around 16 to 19 percent.  This is why you should look at these credit cards as being a short-term financial gap – not something long-term.

If you’re able, pay more than the monthly amount to reduce how much interest you pay. If you pay just the minimum amount, you’ll put forth a lot more money toward the interest and it will take longer to pay off.

 

Switches Balances

Already have a credit card with a balance and interest rate? With a new (and better) card, you could switch the balance of the one card and put it onto the new one. Bear in mind that many cards offer a zero percent balance transfer rate with an average of a three percent transfer charge. Is it worth it? If the interest you’ll be paying is less than your current interest, it’s definitely something worth looking into.

And, if you can pay off your debt before the zero percent interest is up, even better.

 

Better Your Credit Score

When it comes to your credit score, it can be tough to get a lender to loan you money to boost your rating. After all, they want a person who has perfect or near perfect scores. And, if you’ve had debt issues in the past, it can be difficult to get an approved application. Believe it or not, your checkered credit past doesn’t have to hurt you.

A credit card – even ones geared toward poor or bad credit – can help you boost your credit rating. All you have to do is carefully watch your payments – making them on time every time and pay more than the minimum monthly amount. In time, you score will rise and you’ll get a better card offer.

A prepaid card can also help in boosting your credit score. While you’ll need to pay it back within 12 months, how you managed it will then be given to the credit reference agencies. If you’re noted as being reliable, they’ll increase your credit score.

Stability is also a key in boosting your credit score. If you own your home, it works more in your favor than a renter does. Lenders want stability, and if you’ve recently moved or took on a new job, they may turn your application down.

The surefire way to boost your credit rating is to get control over your debts. Be sure all your payments are made on time and that you don’t go beyond your credit limit. If, for whatever reason, you can’t make your payments on time or afford to pay a debt back at the moment, get in touch with the lender right away.

 

A Comprehensive Look At The Negative Benefits Of Having A Credit Card

 

Penalty Charges

It’s extremely important that you make all your payments on time, as missing a payment or payment deadline could result in penalty charges. If you’re late on your payments, your interest rate could also skyrocket along with the late fee imposed on you.

Now, these penalty charges can also extend to you surpassing your credit line. The penalty fees are dependent upon the credit card you have but can range anywhere from $20 to $50. The problem people tend to have here is that they think their purchase will be denied if they’ve exceeded their credit limit. That’s actually not true!  Credit card companies will often approve over-limit charges just so they can charge you the fee for going beyond it.

If you notice you’re about to go beyond your limit, you have two options: stop using the card or ask the card issuer for a credit limit increase.

Special Note: It’s not uncommon practice for a credit card issuer to close an account if there are repeated occurrences of lateness and penalties.

The best way to thwart these companies attempt to hit you with penalty fees is to maintain control over your credit card and watch your statements. If you see problems, inform your card issuer, or finance establishment right away.

 

High Interest Rates

If you have poor or bad credit, your chances of a low interest rate is extremely low. In fact, many credit card issuers will extend the highest interest rates they can on the riskier borrowers. If you need to take out a high interest credit card, be sure you only use it when you can afford to pay off the bill every month. If you’re racking up debt due to interest, it can become very difficult to get out from underneath the debt. And, this will cause even further harm to your credit rating.

 

Never Use Cash From The Credit Card

You may be tempted to use your credit card to take money from an ATM. Don’t! All credit card issuers will impose a fee of two or more percent, and the interest rate from that withdrawal tends to be higher than the actual interest rate. Often times, the interest-free period doesn’t apply to the cash withdrawal. It’s best to forgo the option entirely.

 

Be Mindful Of The Debt Trap

Don’t forget that a credit card is in effect the same as borrowing money. You will need to pay it back sooner or later. Think of your credit card as a loan. It’s got an interest rate and you’ll need to pay the money you’ve borrowed back to the holder. If you don’t pay your credit card off each month, interest gets tacked on. This interest can just as easily be as much as your minimum monthly amount.

Therefore, always pay more than your monthly amount – even if it’s a small amount. If your amount due is $65, pay $100, if you can feasibly afford to. Don’t even think of your credit card as being a long-term solution to your financial problems.

 

Hidden Costs

Credit card companies are notorious for hidden fees, and it’s up to the consumer to stay alert for them. There are an array of charges you must be mindful of including:

 

  • Balance transfers – Credit card companies use them to lure people in with the promise of a low or zero percent introductory period. However, what they don’t mention is the charge of three to five percent on the balance transfer. The percentage can negate the savings you would get with the teaser rate, which is why you need to read the fine print.
  • Currency Exchanges – It’s nice not to have to pull out wads of money and exchange them for foreign money but the convenience has a price tag to it. For each purchase of one to three percent, it can really add up.
  • Minimum Finances Charges – Believe it or not, some cards will hit you with a finance charge, even when you don’t have a balance to carry over. It begins by hooking you in with the 0 percent intro rate, you buy a few things and the balance is still there after the intro period is over. You pay interest even after you’ve gotten the balance to nothing, and you don’t even realize what happened because it was on top of the monthly balance.
  • Membership – Membership fees, also called annual fees, are the 1970s and 1980s holdout when it was tougher to get credit. While many credit card companies have started to do away with this, many still use it in their advertising campaigns that they don’t offer an annual fee. However, some cards will try for an annual fee of $100; sometimes more. If you can’t qualify for a no-card fee or the fee for membership is offset by the benefits of the card, it may be best to forgo getting this kind of card.

 

Protection Offered On Credit Cards

Believe it or not, your credit card can be a weapon of sorts.  It offers you an array of protection from an array of financial mishaps and dangers.

You already know how beneficial a credit card can be – helping you to make ends meet when something unexpected arises or paying for a big purchase that you can’t particularly afford otherwise. Your credit card lender offers protection to a certain amount when the purchase price is over an amount.

Should a company go bankrupt before your item is delivered or if that item is broken and the supplier refuses to do anything for it, your credit card company will refund the purchase price.

The great thing about this protection is that it’s free and comes with every credit card you get. There are no hidden charges and there are no higher interest rates you’ll be paying for it.  Why offer this protection though?

The Consumer Credit Act is why! According to Section 75, these companies must offer protection for purchases between a certain range.  Debit cards don’t have this kind of protection, which is why many people opt to use credit cards for large purchases.

Purchase Protection

Credit cards are often appealing because they offer a purchase protection, which basically means if your purchased product gets stolen, or gets lost, within a period of time – 90 days typically – the credit card company will refund you the money. For instance, if the credit card was used to purchase a new laptop but it was stolen within that timeframe, the card provider could refund you the amount.
Identity Theft Protection

Credit cards also offer free identity theft protection – if someone should steal your identity and rack up credit cards debts in your name – they’ll cover you. It’s usually in the form of two credit checks a year, which allows you to find out if anyone has taken out a credit application in your name. You can also access the available ID fraud helpline.
Travel and Rental Car Insurance Protection

Some credit cards will offer protection for their travelers such as flight insurance, roadside assistance, car insurance protection, baggage protection, etc. If your rental car was paid for with your credit card, the coverage will cover any damages you may have incurred. Be sure you talk with your company first to see if they offer this kind of insurance.
Payment Protection Insurance

Another kind of protection credit cards offer, but for a monthly payment, is payment protection insurance. If you can’t pay back your loan or debt – perhaps you’re sick – the credit card company will work with you.

The problem with these policies in the past is that they were sold to folks wouldn’t be able to use them. Perhaps they were self-employed or they had a pre-existing medical condition. This has led to some serious negative press.

Be sure you know what you sign up for, if you decide to get this. It can be a real lifeline if your income is suddenly gone – for whatever reason. Look at the various quotes from providers to see what their terms and conditions are. Be sure you’re mindful of any policy exclusions that could prevent you from successfully making a claim.

 

How Your Credit Score Is Affected

When you ask for credit from a lender, they’re going to determine your credit worthiness based on your credit file. This file is maintained by the three big credit agencies – Experian, Equifax and TransUnion. These files contain everything about your financial history such as on-time payments, late payments, bankruptcy, liens, etc.

The lender is going to look at the information and come up with a credit score using their rating system. Those who rank high up tend to get the best deals; consumers with a low score tend to be hit with higher interest rates. That’s because lenders view them as being risky loan borrowers.

History Of Debt – Bad Credit or No Credit

If you’ve had issues with your debts in the past, your credit score isn’t likely to be very high. In fact, creditors will note as you being a risky borrower. And, if you’ve never had credit before – credit card or loan – they have nothing to go on that determines your credit worthiness.

 

Bankruptcy/Lien/Judgement

Your credit score will drop if you have ever filed bankruptcy, or had a lien or court judgment against you. Lenders are very wary of borrowers with these on their credit. A bankruptcy can stay on your record between seven and 10 years, depending on the kind of bankruptcy – 7 or 13 – you filed. An unpaid lien will stay on your record for up to 15 years while paid liens are removed after seven years.

 

Credit Footprint

This is the term for people who have a lot of credit accounts and tend to move their accounts on a regular basis. Keep in mind that each time you use, or even ask for credit, you leave a footprint. If you have a lot of footprints, especially in a short period of time, it can hurt your credit rating. Lenders look at you as if you’re in some sort of financial trouble. Limit your applications, especially if you’ve been turned down for credit.

 

Special Note: If you trying to see what lenders will say, ask them for a quotation search, not a credit search. While it’s not perfect in knowing an outcome, it doesn’t leave a footprint on your credit.

Refused Credit

Another way your credit can be affected is if you’ve been refused credit. Most creditors will only give you a broad reason for why they denied you credit. Refused credit could also be a matter of timing – did you recently move or did you start a new job?

Late Monthly Payments/Minimum Only Payments

A big way your credit is affected is not making timely payments or making only the minimum monthly payments. Credit card holders see this as you having a hard time keeping up with your financial obligations and managing the debt. Any missed payments can take up to three years to drop off your record.

 

Paying Your Debt Off Too Soon

Believe it or not, but a model person can find themselves with poor credit. That’s right! If a person borrows a minute amount of money or pay their cards off completely each month don’t appear financially credible to lenders. The chances of being turned down for credit is often high.

 

What You Should You Do Before You Apply For Credit Cards

If you think applying for multiple credit cards is going to help you get approved for one, think again. Every application leaves a”credit file footprint” because every lender will search your credit history. If one application is denied, chances are it will be hard for you to get acceptance anywhere.

 

Attain A Copy Of Your Credit Report

Before you just apply – left and right – for a credit card, attain a copy of your credit report and look over it. Does everything appear to be in order? Do you see any mistakes? If you see errors on your report, you must get in touch with the credit bureaus to fix the problem right away. Errors could actually cause your credit rating to drop.

 

Stability

If you want to impress the lenders, you need to show them that you’re trustworthy and it is safe for them to loan money to you. A way to do this is to live at the same address and have the same job for several years. If you notice a life change is on the horizon, consider asking for the credit before the change happens.

 

Decrease The Debt You Have

Lenders like seeing that you’ve been making regular payments on your debt. However, if you’re only making the minimum amounts and your debt is high, chances are they’re not going to approve you for more credit. If you want a particular card but already have a lot of credit cards in your name, it may be a good idea to close some of them so you look better to potential creditors.

 

Get Some Type Of Credit History

Having no credit history can have a negative impact on you getting any kind of credit. It can limit you on the kinds of cards you get, including cards with low credit limits and high interest rates. If you choose to use one, ensure the payment is paid off each month so you don’t have to pay the interest charges. These cards can establish your credit for better credit card offers later on.

 

Want To Improve Your Chances For Credit Card Approval?

If you want to improve your chances of being approved for a credit card, you need to do your homework. Not just on the various credit card companies out there but also on yourself. You want to ensure your credit report is as accurate as possible. Make yourself look good to the lenders, doing this by bettering your credit rating. Why should this be noted twice? Because a good credit score ensures lower interest rates and better credit card deals.

Lenders are going to look for a particular set of criteria on applications they are given. And, each one has their own requirements which they go by. Clean your credit history to ensure you have a good credit score.

What constitutes a good credit score? What constitutes a bad credit score? The range for scores is actually dependent on what’s being used to calculate your credit worthiness. Most credit card companies go after the FICO score, which has a range of 300 to 850. The higher the number, the better your score.

 

Excellent Credit: 750+

Good Credit: 700-749

Fair Credit: 650-699

Poor Credit: 600-649

Bad Credit: below 600

Your credit score is all based on how you treat your finances. The better you are at managing your money, and that includes your debts too, the better your credit score will be.

 

Choose The Right Credit Card

After you send in your application and before you sign anything, make sure you really have picked the right credit card. If you don’t, you could pay more than you bargained for in the end.

 

Can You Get A Credit Card?

It’s no longer easy to attain a”loan” from financial institutions. Most of them have stringent rules in place for applications approvals. Therefore, you may find it’s a bit more difficult to get a credit card
Check Your Credit Report and Boost Your Chances For Approval

When applying for a card, the credit history you currently have is going to play a big part as to whether you get approved for a creditcard, or not. So if your credit score isn’t very high, your credit application will be denied.

There are several things you can do to better your score:

  • Check out the three big credit agencies – Equifax, Experian and TransUnion. If you see any imprecise data or mistakes, be sure they’re fixed because they may be affecting your score.
  • Be sure you carefully manage your money. If you’ve missed payments to creditors in the past or have had issues making loan payments, your credit score is going to be affected. Be sure you pay the bills when they’re due, (even before their due date). And, if you have problems making a payment, reach out to your creditors to see how they can help. Believe it or not, they will work with you.

If you’re denied for a credit card, you may be tempted to apply for another one. However, applying for many credit cards at one time signifies to creditors that you’re desperate and need money… now.

If, for some reason, your credit score is low, you don’t need to throw in the towel and think you can’t get a credit card. There are a significant number of credit cards that are geared toward folks with poor or bad credit history. However, these cards tend to include higher interest rates – think 30 percent or more. But, if you completely pay the balance off each month, you won’t need to worry about the high interest rate and this can actually boost your credit score in a positive way.
Do Some Research To Find A Card That’s Right For You

Remember, credit card companies are going to offer the best deal to the best borrowers. You know those 0 percent offers you hear so much about? Those are generally offered to people with the best credit. Therefore, if you know you won’t be approved, don’t even bother applying.

Do your research to find what credit cards are best for you so you don’t affect your credit score too much.

Another worthwhile option is to use a secured credit card to better your credit history and rating. With a secured credit card, you won’t run into the issue of getting into debt or paying interest.

There’s no doubt how useful a credit card can be. They are the easy way to pay for what you want or need. However, it’s important that you’re financially aware of how much you’re putting on that card, what the maximum amount available is, the interest rate and more to ensure you don’t get into financial trouble.

Keep a regular check on your credit file to ensure it’s right and upto date. If there’s a mistake, it can play a havoc on your credit score. It’s your legal right to look at your file, which you can do once a year for free in the U.S.

Be smart about money and stay out of debt.

 

 

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