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Credit Card

A credit card can give it users great value and opportunities when used properly. Here's what you need to know about them.

CREDIT CARD – a card issued by banks, businesses, etc, enabling the holder to obtain goods and services on credit

Definition provided by Dictionary.com

How To Use

Banks issue credit cards to consumers or businesses and enable them to obtain goods and/or services using loaned capital. In essence the credit card functions the same as a debit card when it comes to making purchases and transactions. The difference lies in the interest charged for the use of the credit card. Because the banks are essentially loaning you money, they expect the principle ( your credit balance ) to be repaid along with interest.

When applying for credit, the banks or lenders will likely reference your credit score to determine how much credit (if any) they’ll issue. A higher credit score will ultimately lead to a higher credit line and potentially a lower interest rate. Knowing your credit limit is crucial because you don’t want to overspend. A high credit utilization occurs when you have more debt than available credit on a particular account. This imbalance negatively impacts your credit score.

Interest & Fees

Interests rates, commonly referred to as APR ( annual percentage rate ) and credit fees vary depending on the bank you’re using. Most of the time the consumer agrees to a variable rate. This means the interest rates charged by the bank can change per market conditions. Usually a rate hike from the federal reserve will result in a rate hike on credit cards and other bank loans. Monitor your interest rates closely because it has a great affect on the amount of money you’re paying each month. The best course of action is to pay off your balances in full each month to prevent these charges. Moreover you’ll want to keep in mind maintenance fees or annual dues for the same reason.

Rewards

One perk of having a line of credit with a bank is the redeemable points you accumulate through each transaction. For instance, many offer 2x points on gas and dining or even 1% cash back on every purchase. Again, this is something you’ll have to consider for each different card. While they do provide a nice incentive to use the credit card, you don’t want to go for broke in the hopes of redeeming your points for a cruise.

If you’re looking to build your credit you may be better suited to apply for a secured card, this card functions similar to a credit card however the balance is determined by a secured deposit from the consumer.

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