Credit Cards

The Type of Credit Cards

There are three main types of credit cards that are common in America. These are the travel and entertainment cards, bank cards and retail store cards.

Travel and entertainment cards - Examples of this type of credit card are the American Express and Diners Card. Though spending limits are liberal, account statements must be settled or paid in full at the end of the month.

Bank cards - Examples are Master Cards, Visa, GM, and Ford cards sponsored mainly by the banks. Spending limits or credit lines are defined by the bank. Terms and conditions vary from bank to bank. Payment of the credited balance may be in full which attracts no interest or a minimum part of the balance with an interest charged

Retail store cards - Examples are Sears, J.C. Penney, Shell or Mobil cards. These cards, known in some countries (the ones from gas companies) as fuel cards are only accepted in specific countries and usually do not have annual fees. The terms and conditions for the use these cards vary widely.

Some of these cards are geared toward individual consumers, while others are set up in ways that work best for small businesses. Depending on your needs and options, choose the type of card that best suits you.

The Advantages of Owning a Credit Card

Since the time American John Biggins invented the first bank issued card, it has evolved to become one of the most versatile method of payment for goods and merchandise. There are 5 main advantages that I could think of in owning a credit card.

• The diminished need to carry around unsafe, dirty and bulky cash. It is diminished because some small scale merchants (who perhaps are scared of technology) still insist on being paid in cash.
• The help it provides in building up your credit history, but only if you always pay on time.
• In some countries such as UK, if you buy goods using a credit card and the goods turn out to be faulty, they are usually insured for a period of time, say two months, and you can be indemnified even for total loss.
• Credit cards are relatively safe. Even if you lose your wallet to pick-pockets or thieves, you can secure your credit by simply calling the credit card company and canceling the stolen card.
• It provides a tracking system so you can see your transactions, and keep yourself from overspending.

I say that's more than enough benefits to consider. Thus, these advantages make this plastic money valuable enough to stay for good.

The Do's and Dont's of Using a Credit Card

Surely, credit cards have their benefits. In America, if you want to rent a car, you need to have a (major) credit card. But, consider this scenario:

You received an offer in your mail that sounds good. Maybe it's a new generation TV or a fridge. But it costs $2000. Oh, but you have a credit card with a $5000 limit, and you immediately made the purchase. Here is how your repayment schedule will play out. Most credit cards charge a minimum interest (usually 2%) of the total balance per month. Assuming the interest rate is 18 percent and you choose to repay the minimum amount of $40, $30 of that will go towards interest and only $10 towards the principal. As a result, it will take you 30 years to pay off the credit and end up paying over $5000 interest.

Be wise to heed this advice: "Credit cards are not a substitute for not having money." Every time you use a credit card, bear in mind the following do's and don'ts.

Do's

Always plan your purchases of needs and wants. You need the essentials, and you want everything else. The ability of making a distinction might help you plan wisely.

If caught up in financial difficulties, talk to the issuer who might re-schedule your payments. Simply defaulting will build up an unfavorable credit history and probable denial next time you apply for credit.

Unless it is an emergency, stay within your credit limits. If you must spend over the limit, make sure you are within the manageable levels, say within 30 percent.

If your mails are flushed with more favorite deals than you currently are enjoying, you may approach your issuer for a better deal. They want to retain you as their customer, so they will listen.

Don'ts

Do not make household purchases using your credit card. It's more expensive in the long run.

Do not just pay the minimal amount. You will end up paying exorbitant interest. The quicker you clear the debt, the better.

Do not use the credit card to purchase things you can't afford.

Choosing the Best-Valued Credit Card

Credit card offers vary from bank to bank. Here are some of the things you need to consider before choosing and applying for a credit card.

First, compare the following: (1) Interest chargeable for all the credit cards for which you are eligible. While the rate may not remain fixed indefinitely, it's always advisable for first timers to go for the one charging lower rates. (2) Services and other features such as the cash back incentives, or warranties, rebates and the like. (3) The wide acceptance of the credit card to enable you to pay for your needs.

Next, read the fine print, especially regarding the other charges that may be charged on your account, like late-payment fees, and annual fees. Do yourself a favor by familiarizing yourself with the following terms:

• Annual Percentage Rate. This is the measure of the yearly cost of credit.
• Finance Charges. These are the total charges involving the transaction.
• Grace Period. This is the period the issuer gives you before he starts charging you interest on new purchases. Take note that not all credit cards have a grace period.

Lastly, decide what credit limit is appropriate for your income level. The fewer credit cards you have, the better you can track your spending.