Swipe Responsibly - Credit Card Basics
The first credit card I got was a student credit card from Chase Bank in 2004. I was in college and thought it would be good to have a credit card for emergencies. The limit was $900 and I was scared to use it for fear of the ease and fairly painless process of use…then I would be stuck with an astronomical bill I couldn’t afford leading to ruined credit. But that shouldn’t have been my fear. It was a lot easier for me to say no to useless purchases then than in full time working adulthood. It’s so easy now to say “I make enough money to charge this purchase, then pay it off for the next 3+ years, well after I’m done using the purchase, so let’s get to shopping!” The world of credit cards can be downright intimidating, but with a good understanding of how to use them responsibly and for building good credit, they can be a great tool to help you achieve your financial goals.
Credit cards are hard small pieces of plastic issued by banks, companies, or other financial institutions that allow consumers to buy goods and services on credit. Every time you use your credit card, you’re actually borrowing money from the credit card company that issued you the card. The credit card company pays the debt for what you bought. You then pay the money back you borrowed to the credit card company, as well as a fee they charge you called interest (how the credit card companies make their money). Credit cards are called revolving credit because as you pay the money back, your credit becomes available for you to use again and again.
-Credit cards are a lot easier to carry around than wads of cash and can come with purchase protection.
-Many credit card companies offer incentive programs based on the amount of purchases you make (ex. cash back, frequent flier miles, additional store discounts, etc.)
-Credit cards can help you establish credit for the first time or rebuild credit if you've had problems in the past, as long as you stay within your means and pay your bills on time.
-Credit cards can make it easy to spend beyond your means.
-Your purchase will suddenly become much more expensive if you carry a balance or miss a payment.
-Consumers are using credit more than ever before. If you charge freely, you may quickly find yourself in over your head-as your balance increases, so do your monthly minimum payments.
If you’re in the market for a credit card here are a few tips that will keep your relationships with credit cards in the “honeymoon phase.”
-Get a credit card with a low annual fee and low interest rate. Be sure to read your cardholder agreement. It spells out all the fees and finance charges.
-Pay your credit card bills on time. This is one of the best ways to build good credit because it shows lenders that you’re reliable. It also helps you avoid late fees.
-Always make at least the minimum payment each month, but pay as much as you can each month. This will reduce the interest and late fees you pay.
-Don’t use your credit cards to buy things you really can’t afford (Do I want those new Christian Louboutin 2017 So Kate’s in purple for this spring/summer…YES…Are they a financial priority where I will spend cash on them…Not right now…Do I need/want them enough to put them on credit card…maybe?? LOL NO!!).
-Avoid cash advances if at all possible. They tend to have higher interest charges than normal credit purchases.
-If you’re getting into trouble with debt, get help early. Consider talking with a credit counselor, an experienced professional, who can help you get out of debt (Cents Savvy offers credit, debt management, and budgeting services).