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An Introduction To The Humble, But Oh So Powerful, Credit Card
By: Ron King
It's hard to imagine doing business today without credit cards. If you are 1 of
the few who do not own a credit card, you probably have difficulty renting a car
or reserving a hotel room. On the other hand, if you have a fistful of maxed out
credit cards and want a new one, you have a whole new adventure ahead of you,
too.
Let's start with the basics.
What Is A Credit Card?
The dictionary defines a credit card as: "A card which can be used to obtain
cash, goods or services up to a stipulated credit limit. The supplier is later
paid by the credit card company, which in due course is reimbursed by the credit
card holder, who will be charged interest at the end of the credit period if
money is still owing."
In other words, whatever you charge to your credit card has to be paid back
within the credit cycle, or an interest amount will be applied to the remaining
balance. Sometimes, lots and lots of interest.
Pros and Cons of Credit Cards
The obvious advantage to using a credit card is that it allows you to purchase
goods or services that you might not be able to pay for immediately. The credit
cycle of most cards is usually about 30 days, and if the money is paid back in
that amount of time, there is no interest owed. This sounds good in theory, just
like an interest-free loan. But the bottom line is that most folks don't pay off
their balances on a monthly basis. This is where the disadvantages come into
play.
Any amount that isn't paid off within the monthly cycle will be subjected to an
interest charge. Depending upon your balance and the rate charged by the
specific card issuer, that amount of interest could be huge. On top of that,
many people will continue to charge things to their card, and the balance and
interest keeps growing until they have no hope of ever paying off the card by
only make the minimum payment. This is a very common scenario, and most of us
know someone who has been in this situation.
The Rewards of Good Credit
Chances are that every few days you get a pre-approved credit card application
in the mail. Sounds easy, doesn't it? Well, before you accept this generous
offer, read the fine print. You'll see that many of these promotions come with
hidden penalties in the guise of high interest rates and annual fees.
If you want to get the best possible interest rate with no additional fees,
you’ll need to give the credit companies what they’re looking for in your credit
history. They will check to see that you are responsible with your credit and
that you have paid your bills in a timely manner. These signs of stability and
credit responsibility will encourage the card company to reduce the amount of
interest they will charge you. Outstanding loans with late payments and too much
available credit will work against you.
Although credit cards can be great for emergencies, they can easily get out of
hand. Before you apply for one, decide in advance what you plan to use it for.
If used with discretion, credit cards can give you added economic flexibility
and buying power.
About the Author:
Ron King is a full-time researcher, writer, and web developer. Visit http://www.new-credit-card-now.com to learn more about this fascinating subject.
Copyright 2005 Ron King. This article may be reprinted if the resource box is left intact. |
