Oh, credit. What may seem like the magical fix to all of the financial woes one may suffer is often just the beginning of a host of problems. A card is not free money – you can not just swipe it and be gifted with wealth. This is when the problems start: your bill arrives in the mail and the free money isn’t so free anymore. You have to frantically find a way to pay and you are stuck. This is how many start debt. This is avoidable however, if you learn about credit. Find the problems in choosing a card, what effects a credit score, how to use the card sensible, interest rates and more.
Choosing your card is the first big step in having good credit. Many factors go into this, so be careful.
The number one factor is to look out for fees charged by the credit card company. Many of these are hidden fees so be sure to look carefully at the fine print. These are often called membership or activation fees that could be removed monthly or annually. They could also effect the amount of available credit you have. Watch out for these fees, and try to find cards that are not filled with them.
Even more dangerous can be the APR, or “Annual Percentage Rate.” APR is basically the cost of your credit, or the interest. Most companies charge an annual APR. If you have a large spender, this increases your APR. Look at the fees and see which has the lowest APR.
Be aware of the interest rates as well. If you just pay the card off at the end of every month, you do not have to worry about this as much. But if you normally spend on big purchases and need a few months to pay off the card, be careful about the interest rates. Companies are sneak about APR and interest, and every card is different. You can have fixed interest no matter what you spend, or charged based on what you spend. The company can change the rates at any time as long as you are notified.
Credit score is another issue. Your credit score is easily effected by many things. The biggest one is the debt to credit ratio. This is easily explained. If you have a 500 dollar credit limit, and your balance is currently 450, you have a bad debt to credit ratio. This will lower your score if you do not pay it off quickly. Paying on time will also make a huge impact on one’s credit score. If you have a lot on the card, pay as much as you can each month and always be careful and assure you make the minimum payment. How long you have your credit card also factors into your score. A good length is approximately seven years. If you apply for loans or mortgages or even other cards, this effects your score as well. If you have many inquiries, this will lower the score.
Your credit card is not free money. Do not treat it like free money. Only buy things that you know you can afford. Keep track of your spending, read your credit card statements, and make sure that you have more than enough money to pay off the card every month.
Educate yourself about credit and choosing a card, what effects credit scores, sensible card usage, interest rates and more, and you will be well on your way to good credit health!
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