Introduction To Credit Cards

Credit Cards, one of the best assets you can have in your wallet! This may sound strange because 38% of all households carry some sort of credit cards debt.  But don’t worry, in the next series of blogs, we will explore how to use credit cards effectively to avoid debt and reap rewards. But first, let’s start with the fundamentals of credit cards:

What Are They?

A credit card is a type of loan that allows you to borrow money from a lender, such as a bank, for a purchase. Credit Cards provides a convenient way to pay for items and are accepted everywhere. They are often issued by most banks such as JPMorgan Chase, Capital One, Bank of America, etc.  Before a lender can grant you a credit card, they review your credit history to evaluate your application. If you have a low credit score, they can potentially decline your application or charge you a higher interest rate. Once your credit card is approved, the bank will give you a credit limit which is the maximum amount you can spend on the card.

How Credit Cards Work

The way they work is straightforward: You swipe your card at the merchant store, the merchant sends the purchase information to your credit card issuer, the issuer pays the merchant and adds the amount to your balance. Credit cards allow you to make immediate purchases without using your own money, which you will then pay off over time, with or without added interest.

Common Credit Cards Fees

Understanding the fees associated with your credit card will help you stay away from debt. Below are standard fees most credit cards have:

  • APR –   Annual percentage rate is the interest rate that is charged on anything you buy that you don’t pay in full at the end of the month. Think of it as the loan interest rate.
  • Late Payment – Fee charged if you don’t make the minimum monthly payment within the grace period.
  • Over the limit – Fee charged if you spend over your credit card limit or credit line.
  • Annual Fee – Yearly fee charged by some credit cards.  

Types of Credit Cards

There are various forms of credit cards and each is tailored for a specific audience. Not all cards are for everyone, some cards require a high credit score to be approved. It’s important to know the type of card you have in order to use it effectively. Below are some of the more common credit card types:

  • Standard Credit Cards – A general purpose card that has revolving credit lines. This is the most common form of credit cards.
  • Reward Cards – Credit cards that have a rewards program associated with it.  The benefits of these cards can come in the form of cashback, points, or travel miles. Secured Credit Cards – (Pay-as-you-go cards) Require the cardholder to deposit money into the account prior to usage. These cards are often used to build credit scores so they tend to come with high-interest rates.

Credit Cards can be very useful if managed properly, but never forget they are a form of borrowing money. Never borrow more than you need to!


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