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| Credit Cards |
Credit card system is a type of retail transaction settlement and the credit system, which his name comes from a plastic card issued to users of the system. A credit card is different with a debit card, where are the credit card issuer lends the consumer money and is not taking money from the account. Most credit cards have the shape and size of the same, as specified by the ISO 7810 standard.
*No amount of credit card reform is going to help if you don't spend the time to make your credit cards benefit you. As with many things, credit cards can be wonderful if you are disciplined, but they can also backfire and create a huge financial hole for you to dig out of. (If the latter is more likely for you, may I suggest measures such as freezing your credit card?) Here are six ideas for how to benefit from your credit card.
There are Some Ways to Benefit From Your Credit Card, among others:
1. Eliminate Annual Fees
You likely looked into this before you applied to your current card of choice, but is your credit card still free to own? Many institutions started charging annual fees, and there's a chance that yours does now as well. With companies likely adding the annual fee as a line item on one of your monthly bills, it may go unnoticed, so double check to make sure. (See also: Credit Card Fees: Hidden and Otherwise).
2. Pay Your Balances Off Each Month
I contemplated whether to put this one in, because it's obvious. But it's so important that everyone needs to hear this again and again. Don't use a credit card unless you can pay it off each month. Got it? Now go read it again, and follow the rules.
If you don't believe that it's possible to live without borrowing, just remember that people were fine before the invention of debt! If you can't afford it, just don't buy it. (See also: How Much Does Your Credit Card Debt Cost You).
3. Stick With Cash-Back Rewards
There are zillion different ways to redeem your credit card rewards, but it's probably best to stick with getting cash (or perhaps a statement credit) unless you were going to need to use it anyway. For example, getting a free airline ticket is good if you were going to buy the exact same ticket for the exact same price, but getting a $50 gift card and ending up buying $73.28 worth of useless junk is not worth it.
4. Know All the Benefits You Are Getting
It's always a good idea to know every benefit that your card is providing. In addition to reward points, some cards get you into airport lounges, while others will double the warranty of a product. By knowing all the benefits, you won't be paying extra for something that you can get for free. For example, one of my credit cards provides rental car insurance.
5. Write Down Why You Applied for the Card in the First Place
A good way to remember all those benefits is to actually write them down in simplified form somewhere, so you can look at it once in a while to refresh your memory. I know it is a bit of work, but I applied for one of my cards eight years ago. Would you remember all the details from eight years ago? Or let's say you applied for a 0% balance transfer credit card. Now that the introductory 0% APR period is over, do you still need to keep it?
6. Use Credit Cards Whenever Possible
This is only for those who can pay off the balance of course, but remember to use your credit card every chance you get! I know there are many people who like to make fun of those who use credit cards for the smallest purchases, but did you know that it is actually easier (and faster) for both the buyer AND the seller when small purchases are paid using a credit card? When you don't even need to sign for a purchase at some of these stores, using a credit card is a no-brainer.
There are many more ways you can save with a credit card, but if your credit card isn't working for you yet, start with the tips up above.
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| Credit Cards |
*How can you forge a positive and fruitful relationship with credit cards? By learning the basics before you apply for an account. Understanding the fundamentals -- from knowing which types of credit cards exist to the legalities of usage -- will help you charge wisely from the moment you receive that powerful piece of plastic.
Below is things you must know about credit cards, among others:
1. There are lots of different types of cards to choose from
There are several varieties of credit cards: general purpose cards can be used anywhere, while private label retail cards can typically only be used at the issuing store or service station. Most general purpose cards are unsecured, meaning the issuer extends a credit line line based mainly on your credit history. Secured cards, conversely, are backed by funds you put in a deposit account that the creditor can claim if you default. Because creditors assume little risk with secured cards, qualification is relatively easy, so they are ideal for those with damaged or unestablished credit. Robert Manning, professor of consumer finance and director of the Center for Consumer Financial Services at the Rochester Institute of Technology, recommends asking the issuer if an unsecured card will be available once you build your credit history. "Make sure they report to the credit bureaus, too," he says. If they don't, you won't be building a history at all.
2. There's no perfect number of credit cards you should have
According to myFICO.com, the consumer division of the company that invented the FICO credit risk score, the average consumer has nine credit cards. There is no perfect number of credit cards one "should" hold. A couple of general-purpose cards suit most consumers' needs. If you want a retail card, make sure it's for a store you frequent often, and offers an incentive for using it as retail cards typically charge higher interest rates than general purpose cards.
3. You must understand your card's interest rates
Credit card interest rates can range dramatically -- from 0 percent, limited-time balance transfer offers to as high as 30 percent. Creditors use such factors as your credit score, income, assets, current debt load, credit inquiries, payment history and economic conditions to set your annual percentage rate (APR). Who receives the best (lowest) rates? Consumers with positive and proven credit histories
4. Comparing cards is vital
Banks, credit unions, retailers, and credit card companies all issue credit cards. (Visa and MasterCard are companies that help process payments; they don't issue cards.) The best way to apply for an account, says Lita Epstein, author of "The Complete Idiot's Guide to Improving Your Credit Score," is to "locate the card with the best rates and terms by researching options online." This targeted search approach can protect your credit rating from too many unnecessary inquiries.
5. The contract is binding
Read the agreement carefully, because once you sign, you form a legal contract and consent to the terms set by the issuer. These include:
- Credit line/limit
The total amount you may charge, including interest and fees.
- Annual percentage rate (APR)
The interest charged on carried-over balances. It usually stipulates a higher rate for paying late, charging beyond your limit, balance transfers, and cash advances, too.
- Interest calculation method
Most calculate interest charges by averaging the daily account balance, then multiplying that figure by the periodic rate (APR divided by the number of days in a year).
- Fixed or variable APR
Fixed rate APRs have consistent interest rates. Variable APRs are tied to an index (often the prime lending rate, which is set by the Federal Reserve) and thus fluctuates.
- Grace period
The grace period is the number of days (generally between 20 and 30) you have to pay in full before interest accrues.
- Fees
Ordinary fees include those for cash advances, balance transfers, paying late, exceeding your credit limit, and sometimes an annual fee. Avoid cards with nonstandard fees, which Manning lists as application charges, not using the card, calling the creditor if they don't have an 800 number, online account management, and terminating the account.
Be aware that most creditors reserve the right to change any of these terms -- so check your mail vigilantly for adjustment notices.
6. You can pay in full...or not
Each time you charge, you borrow money. However, because credit cards offer a revolving balance option, you aren't required to pay the entire loan -- as long as you make at least the minimum requested payment, you can carry the remainder over to the next month. Interest will be added to the balance. Avoid paying just the minimum payment though. "Your creditor may consider you to be high risk, and increase your interest rate accordingly," warns Manning.
7. You have rights
As a cardholder, you have a legal right to fair treatment. The Truth in Lending Act requires issuers explain all the terms of the contract in detail, in language the average adult can understand. Problems with your bill? The Fair Credit Billing Act gives you the right to dispute and correct errors, and protects your credit rating during the process.
Ultimately, there is no secret to using credit cards wisely. If you get a low-fee account, always pay on time, and carry no debt from month to month, charging is free. Even better, if your card has a good rewards program, you can even come out ahead by using them.
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