Using credit cards what you need to know
Americans owe nearly eight billion dollars in credit card debt. On average each household that using credit cards owes about $15,000 with an interest rate hovering around 15%. With so much debt and so little money, it is no wonder that our nation is struggling under the heavy burden of major consumer debt. Before you whip out that plastic for your next purchase, consider the pros and cons about using your credit card.
Credit Card Benefits
There is a lot of negative hype when it comes to using credit cards. But if you use credit cards wisely they can help you build your credit and give you perks you couldn’t get without a card. Think about the possible benefits you can receive using your credit card.
Credit Cards Can Boost Your Credit
If you pay your credit card bills on time and regularly each month you will build your credit score. A FICO score, an acronym for Fair Isaac Corporation is a company that determines your rating based on a scale ranging from 300 to 850. The closer your score is to 850 the better. Your rating will improve if the analytics in your FICO score determine your good credit behavior and steady payment history.
Make purchases Without Spending Cash
Essentially credit cards allow you to buy items without cash. Nearly everything can go on a credit card, from small purchases like food and clothing to large items such as vehicles or even houses. Credit cards make it easy to acquire items without cash.
Reap Additional Rewards and Benefits
Many credit card companies such as Capital One and Mastercard partner with other companies to provide card users additional benefits or discounts when they use their card for specific searches. For example, Capital One offers frequent flyer miles that add up every time you purchase airline tickets or other travel arrangements. After you have accumulated miles you will be able to “spend” them on airline tickets or other approved purchases.
Credit Card Disadvantages
While you can acquire things by using credit card, it can quickly turn into financial disaster if don’t plan or watch your spending habits. Examine a few of the problems spending freely with credit cards will cause you.
High Interest Rates
There is no free lunch when it comes to credit cards. Big purchases can mean big fees. Also, lower credit scores can result in higher interest rates. If you begin making large purchases in a short time period, creditors may begin to question to your behavior and raise your interest rate. Make sure you read the terms thoroughly before signing up. You can avoid interest if you make payments within the billing period, which is general between 15 to 45 days.
Ruin Your Credit
Unheeded spending and a hiked interest rate combined with a few late payments and you will find yourself quickly spiraling down the financial drain. As FICO determines your credit rating based on your credit card and loan behavior, lenders are not apt to loan to people who spend large amount of credit without paying them back.
A lost or stolen credit card can rack up additional fees. While charges on the stolen card can be refunded, it usually takes months of investigation before that money is freed up again and your credit is cleared. Charges to issue a new card might be applied to your next statement. You should always sign the back of your card and stay wary and alert when making purchases using your card.
Basic Credit Card Terms
Reading the terms before signing up for a card or deciphering through the jargon thrown at you in your credit card statement give many individuals a headache when you don’t know the terms. Learn a few basic credit card terms to steer clear of confusion and possible financial loss.
APR or Annual Percentage Rate –Defined as the yearly interest rate which tells you how much a credit card company will charge for each transaction.
Balance Transfer –The program and terms that a credit card company handles when transferring the credit card balances onto the current card.
Finance Charge –An additional fee charged on your credit card account. A finance charge can cover everything from special fees for a cash advance to late payment charges.
Grace Period –This is a time frame, usually between 20 to 30 days where no interest is charged for new purchases. This typically occurs only to those who do not have a cash advance from a prior month.
Variable Interest Rate –An interest rate that changes with the economy. The rate can change daily, monthly or yearly. Check the terms in your credit bill to see how often the rates will change.
Cut up that Card
If you find yourself falling down that slippery slope of increased spending but not paying, put a stop to it immediately. Cutting up your card, paying down your balance, find low interest credit card offers and improving your credit will not only give you more money; it will allow you to live a life free from financial stress. Don’t make the mistake of being blind. Ask questions and find out everything you do not understand before you sign up for a credit card.
Additional information on Using credit cards