What to Know Before You Get a Credit Card |
Posted: August 6, 2013 |
During this decade, almost everyone has a credit card that is over the age of eighteen, or even earlier if your parents gave you a prepaid credit card. Basically, credit cards have turned into, perhaps, the most used form of “currency” today. They are easy to keep up with and they decrease the chances of you being robbed of your money during a robbery, since you can’t cancel paper money. However, they also have their downsides as well, such as high interest rates, hefty fees for late payments and so on. So, before you go out and get a credit card make sure you read this article. How Much Does a Credit Card Cost? Before you sign up for any type of credit card you need to make sure that you are aware of the true costs of credit cards. Many people are under the impression that credit cards are free, but that’s simply not true. Instead, how much you pay for your credit card is going to depend on your credit card usage. What is true is that a credit card can be free only if you make sure your balance is paid in full before the billing cycle comes to an end. Credit card costs occur mainly from being late on your payments, increasing your credit limit, financing, and even going over the limit of your available credit. Expected credit card costs that you should be aware of include annual fees or monthly maintenance fees. These two types of fees can never be avoided, which is the main reason why credit cards aren’t free. Another reason credit cards are not free is if you use it like a loan and don’t pay your balance in full each billing period. That’s when the interest kicks in, usually somewhere between 11%-22% interest, depending on your credit score. How Does a Credit Card Affect Credit? When people sign up for credit cards they think that they can only increase their credit score. However, this is also not true. For example, if you are late on your credit card payments it shows on your credit report, which lowers your score. Additionally, if you use more than 39% of your credit you are hurting your credit score, also called your credit utilization ratio. Furthermore, if you close a credit line that has been open for an extended amount of time you are also hurting your credit score. However, if you make your payments on time, use less than 39% of your credit, and keep all credit lines open even if they are not being used, you are helping your credit. Overall, before you sign up for a credit card you need to make sure that you read the fine print. The fine print is where you will find interest rates, default APR, cash advance terms, and other important information that you need to be aware of before you sign a contract with a credit card company. If you have questions or concerns about anything that you read be sure that you call a representative to explain everything in detail with you or you will regret it down the line. This article comes from Kathy Miller. Kathy is a finance writer who loves helping others understand the true cost of credit cards.
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