Credit is not free money but a powerful tool
Credit is not free money. It is in fact a powerful tool that comes in several forms. Credit allows you to buy now with the promise of paying later. By understanding how personal credit works, you’ll learn to manage credit successfully. This will allow you to be in control of your finances. Wise management of credit leads to good a credit history which is a life-long asset.
The most common type of personal credit are Credit Cards. Credit cards allow repeated transactions up to a maximum credit limit. This is known as your available credit line limit. Every time you charge something, you are borrowing the money until you pay it back. Finance charges are added to your account by the credit card company if you decide to pay the money back over time. Each month, you will pay a calculated amount until the borrowed amount is repaid.
It is important to understand that not all cards are the same. There are 3 basic types of cards, each with different benefits, features and security options:
Debit cards:
Debit cards allow you to only spend the amount of money available in your bank account. It offers the convenience to directly deduct purchase charges from your bank account.
Charge cards:
Charge cards do not have a line of credit. You are required to pay all charges in full by the end of the billing period. In this case no interest is charged.
Credit cards:
Allow you to make purchases and pay for them later by using a line of credit extended by a bank. Interest is charged based on the terms of your Card Agreement. Credit cards provide extra protection against fraud. If your credit card is lost or stolen, report the loss/theft to your issuer. Your liability is contained and no one has access to your checking or savings account information.
Also, having a credit card in your own name is an important first step in building a good credit history.
Choosing the best card for you depends on how you plan on using it and which benefits are the most important for you.
Credit cards come with a wide array of rates, benefits and features. Be sure to consider all these factors before you sign up.
|
|
