A credit card is a convenient form of financing that allows you to use it for everyday purposes. Although it’s not perfect, it still gets the job done. But just like any form of financing, if you mismanage it, it might snowball you into a huge debt.
Generally, it’s a more convenient form of financing than personal loans. The reason people are scared of credit cards is the potential for abuse. Because of the purchasing power of credit cards, people tend to overspend their limit, not caring about their monthly bill at the end along with the interest rate.
For most credit card companies, you don’t even have to worry about interest rates since they have a grace period which we will talk about later. With all that said, the other benefits credit cards have include:
Just like other forms of financing, credit card providers issue reports about your accounts to credit bureaus such as Equifax, TransUnion, etc. And with this information, these credit bureaus will calculate your credit score. One of the best ways to build your credit is through credit cards.
To start building your credit score, you’ll need to open a credit card account or become an authorized user of another credit card holder. If you’re just starting to build your credit card and this is the first time you’ll handle your finances, then you probably have a few questions like what is current and available balance? Or what options do you have for credit cards as a first timer?
For the first question, your current balance means the amount of money you have in your account before any outstanding payments are applied. Your available balance is the amount of money you have after the outstanding payments are applied.
If you want to know your options to build credit, there are two. The first one is through a secure credit card. It’s one of the most common stepping stones for young people to build their credit. These cards function like regular credit cards, but you have to make a security deposit when you open one. However, they tend to have a high interest rate and mostly don’t offer many benefits, but it’s a great way to build your credit with responsible use.
Another option you have is a student credit card. It still works like a regular credit card, but they have a much lower credit limit. However, they tend to have great rewards and cashback options, so it’s still a viable way to build your credit with a little extra. Both of these options are common in your traditional banks, so you don’t have to worry about having a hard time finding them. If you don’t have the best credit history, you can have credit cards no credit checks that can still help.
They Have Rewards
Speaking of rewards, credit cards have three main categories of credit card rewards, namely: cash back, points, or airline miles. These rewards will be given to you based on how much money you spend through your credit card. The most common type of reward is the point system, where you will earn points for every $2 you spend, for example.
Typically, the rate of points depends on the type of purchase you make. However, most credit card companies use a fixed point system where no matter what type of purchase you spend, it will always be a point per $2. However, some companies have bonus categories where a specific type of purchase allows for more points.
For example, companies tend to offer more points regarding travel-related purchases. For example, if you buy a travel package, they can allow 5x more points than usual.
So how do you use these points? You can redeem your points to purchase things from statement credits to online shopping. Some companies even have an app where you can redeem your points and spend them on online shopping.
One of the main pulls of credit cards is their grace period. A grace period is a small window of time between the end of a billing cycle and the date of your payment where you can pay your entire bill without interest. By law, credit card companies are not required to allow grace periods, but they allow them on purchases to lure in more customers.
If your credit card allows you to have a grace period and you’re not carrying a balance, you can opt not to pay the interest on new purchases as long as you pay your balance in full. Of course, if you don’t, you will be paying it still, but this time, along with the interest rate.
However, it would help if you remembered that, typically, grace periods are only on purchases, so for other things like cash advances or using a check from your credit card issuer, you still have to pay the interest.
Credit cards are a convenient form of financing. However, just like any form of financing, you have to be careful not to abuse its purchasing power and land in a debt trap. Other than that, credit cards have a lot of benefits for its user, even for one who is just building their credit.