Credit Cards and You:

Credit Cards have become a fixture in American daily life.  Very few people carry cash with them, and tons of purchases, both online and in person, are made with a credit card. If you don’t have a credit card, you should really consider getting one, and not just because it’s a convenient way to pay for things. Credit cards are a perfect way to build your credit score, which is a vital metric to determine your ability to get qualified for a loan. Credit cards work on a simple principle- they are essentially short term loans that don’t accrue interest until after a short grace period, usually the span of a month.  This means that making on-time monthly payments to your credit card company avoids interest payments, essentially letting you get a small loan for free!

If you are looking to get a credit card for the first time, or want to get a new credit card, you’ll need to ask yourself some questions to make sure it’s the best idea for your finances. If you can commit to paying off your balance at the end of every month, then cards with various rewards or points programs may be a good choice for you. Rewards cards typically have cash back opportunities for specific purchases, although some cards offer cash back on all purchases made with the card.  Some cards offer miles for airlines when used as well. The downside of these rewards program cards is that they tend to have higher interest rates.  Because of these higher interest rates you can lose any monetary benefit that you may have gained through the card.  There are credit cards available that have lower interest rates, but these cards tend to have limited or no reward options.

Credit cards are not no limit loan tickets.  Most cards have a limit imposed by the card issuer, usually based upon your credit score.  As your credit builds most banks or credit unions will offer you new cards with increased credit limits. Keeping your limits low is a good way to avoid overspending, but does restrict your purchases.  Part of the benefit of a credit card is being able to make large purchases without needing to carry a large amount of cash on you.

Most banks issue you a card that processes transactions on a specific network.  Credit cards are usually identified by the network: Visa, Mastercard, or American Express. The networks all work essentially the same, however some vendors or companies don’t accept cards from all networks, especially internationally.

The key thing to remember with any credit card is your credit score.  A higher credit score almost always equates to better interest rates and higher credit limits for your card.  Making your payments on time, taking out loans, and having a few credit cards are all good ways to increase your credit scores.  Alternatively, late or missed payment, dozens of different credit cards, and little to no loan history are all factors of low credit scores.  Keep your credit score high, and you can reap the rewards of a credit card.