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Knowing the Facts About Credit Cards
Credit cards can be a wonderful thing. They're handy to have in case of an emergency, to purchase items online and to make reservations and pay for hotels, car rentals, airline tickets, etc. They can also be good when first establishing your credit - many companies and banks will look at your credit card history before you can get a mortgage, buy a car, or get a loan. However, if used too much or in the wrong ways, credit cards can send you into debt faster than you can imagine. Below are some of the reasons that people choose to get credit cards, but keep in mind that whatever the reasons, and no matter how good your intentions may be, life happens - emergencies happen, unforeseen events happen, splurges happen, and before you know it, your credit card could be maxed or even overdrawn.
Why do people want or need credit cards?
Many people get credit cards with the intention of having them in case of an emergency. Others get them to make big purchases when they don't have the cash and then plan to make sizable payments to pay the credit cards down or off in a timely manner. Other people get them with the intention of using them so they don't have to carry cash and then plan to put the money back on them immediately so the balance never gets out of hand.
Another reason people get credit cards is because of a rewards or points system that comes along with the card. Many stores have in-store credit cards that offer specific rewards within the store if you use their credit card. The rewards are often very appealing - gift certificates, discounts, points toward merchandise or trips - but be warned: many of these in-store credit cards have extremely high interest rates. Only you can decide if the rewards are worth the cost of high interest.
A lot of credit card companies get you to sign up by offering special deals or incentives, such as a short interest-free period upon card activation, or a certain number of months where the card is operating under a lowered interest rate. Since many people don't think of the long-term implications, they sign up for the card because it sounds like a great deal. As with the in-store credit cards, only you can make the decision which credit card to choose and why - or whether to even choose a credit card at all.
Dealing with late payments
If you always make at least the minimum payment on your credit card, and you always make those payments on time, you should be fine. The credit card companies keep records of this and will usually check in with you if your credit card payment is late or you simply don't pay it. They will often be understanding, asking why you didn't make your payment and when you expect to be able to make it. It used to be that if card holders were consistently late with payments, the companies would get fairly aggressive - most people have probably heard of someone they know getting nasty calls from a credit card company. You don't hear about that as much these days; most companies are willing to work out a payment plan and may even be sympathetic with your situation. However, if the problem persists and you can't (or don't) make your payments, the credit card company could put your file with a collection agency and this could affect your future credit rating. Even if your account doesn't go to collections, consistent late payments can still affect your credit score. Credit cards are one of the main ways credit bureaus track your payment history because it gives them an idea of what sort of borrower you will be and whether you're worth the risk when it comes to lending money.
Credit card fees
Then there are the fees on credit cards, ranging from monthly fees just for using the card, late fees, interest, and overdrawn charges. Some credit cards charge a monthly service charge, but this should be explained up front when applying for the card. Late fees occur when you're late making your payment, and can be very high. Some credit cards will put the card on hold so that you can't use it until you make your payment The interest on many credit cards is high and might get even higher if you're late making payments on a regular basis. Overdrawn charges are a flat rate that are applied if you go above your limit and will continue to be charged monthly if you can't pay the amount plus your regular monthly payment. These things are detailed in the fine print that many people just skim or don't bother to read at all.
Things to think about when applying for a credit card
A good idea when applying for a credit card is to go into your bank and speak to a financial services representative. Have them walk you through the application step-by-step, explain how things work, and don't be afraid to ask questions - that's what they're there for.
If you decide to apply for a credit card on your own, take the time and read that fine print carefully. It should spell out everything you need to know, from fees to charges to interest rates. If you're not completely satisfied with the terms, but decide to go ahead with the card anyway, at least you're making an informed decision.
If you're a responsible, sensible person with a secure job, you have savings set aside in case of emergencies, and you're fully aware of your financial situation, there should be no problem having a credit card. On the other hand, if your credit is already poor, the decision may be taken out of your hands because no company would be willing to give you a credit card. When it comes down to it, only you can decide whether to apply for a credit card or not. Keep in mind that you may have good intentions and only plan to use the card in emergencies, but the ease and convenience of using credit cards can be a big temptation. Before you apply, think it through, know the risks, know the facts, and weigh the pros and cons. The rest is up to you.
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