WHAT IS A CREDIT CARD?
A credit card allows you to buy things even though you might
not have the money to pay for it right away. The company that
gave you the card lets you spend up to an agreed upon dollar
amount and then makes additional money available to you as you
pay off what you've spent. You must pay at least a minimum amount
by the due date, generally once every month. You will pay a
finance charge or interest on any amount you do not pay by the
due date.
While they can be very useful, credit cards can also be risky.
Even people who are usually good with their money get into trouble
with credit cards. The problem is that people use their credit
cards too often and let their debt add up. Then they can only
pay back small amounts at a time. This ends up costing a lot
of money in finance charges.
BENEFITS OF
CREDIT CARDS
A credit card makes it easy to buy something now and pay for
it later. It's much safer to use a credit card than to carry
around cash. If you lose your credit card, you can ask your
credit card company to cancel your card, and no one else can
use it. But if you lose cash, your money is gone.
Credit cards are also convenient. You can use them to make hotel,
car rental and other reservations. You can buy items over the
phone or online. You can also use credit cards for emergencies,
like unexpected car repairs, when you don't have the cash to
cover the expenses.
Finally, using a credit card gives you a credit history, which
helps to get home loans and other credit in the future.
CREDIT
CARDS: THE GOOD, BAD, & UGLY
The Good: A credit card
is convenient for making purchases. It is also the best way
to create a credit history for you, and this is necessary to
do things like buy a home.
The Bad: It is very easy
to lose control of your spending habits if you rely on credit
cards too often, or if you use them for very expensive purchases.
The Ugly: Once you owe a
lot of money to credit card companies it can take most of your
life to pay them off, and you can damage your credit rating
in the process.
COSTS
OF
CREDIT CARDS
All credit cards have finance charges for not paying your balance
in full each month, but you could save a lot of money by shopping
around for the credit card that offers you the best terms. Key
credit card terms to look at are the annual percentage rate
(APR), annual fee, grace period, and late payment charges.
Shop for a card with a grace period that gives you enough time
to pay your bills on time without charging you interest. Credit
cards with no grace period start charging you fees as soon as
you buy something on your credit card.
Where to get a credit card
Your mail is probably full of credit card offers from national
companies. Most local banks and Community Development Credit
Unions (CDCUs) offer credit cards as well. The fees, charges
and benefits for credit cards vary among different companies.
When you're choosing a card, shop around. CDCUs often offer
the best rates and lowest fees, since they are not trying to
make a profit like credit card companies are.
Some large department stores also offer credit cards that only
can be used in their stores. Usually, when you apply for a
store credit card, you get a one-time discount on your purchase
that day. But these credit cards have limited uses and often
carry high finance charges.
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