A credit card is a card that utilizes money lent to you by your credit card issuer. It’s basically a personal loan. When using a credit card, every time the card is swiped, money is added to your credit card balance, which is the amount of debt you have and need to pay back. Credit cards can be very useful when it comes to all the extra offerings they have, but can also be very dangerous if you misuse them.
Key Features
The key feature of credit cards is their ability to let you spend money that you don’t necessarily have to have at the moment of purchase. Credit cards gain a balance whenever you spend with one. Once purchases are made, they add to the balance which has to be paid off. To avoid interest, pay off the entire balance before the monthly due date. If that’s not possible, you must pay at least the minimum payment, while the remaining balance gains interest, which means that the balance grows even without more spending. Keep in mind that your goal should be to pay your card off every month in order to avoid the high interest rates that credit cards have (ex. 22%).
How To Use A Credit Card
Purchasing with a credit card is extremely similar to purchasing with a debit card. Refer to this article for the steps!
How a credit card is different from a debit card is that credit cards have:
Credit limit - This is the maximum balance you’re allowed based on your credit score
Credit Score - A credit card is affected by and can affect your credit score. Spend responsibly!
Fees - Credit cards have interest rates, late payment fees, and some have annual fees! Always look at this information before choosing a card.
It’s not your money, yet - A credit card uses money loaned to you by a financial institution. You must pay back the credit card balance, at least the minimum amount, in order to maintain your credit.
Greater fraud protection - With a credit card, it’s easier to dispute a charge and reach a resolution before you are held liable for the payment, which is an improvement from the same process with a debit card.
Perks/Rewards - All credit cards have different rewards, some more than others. These rewards can range from credits for streaming services to cashback in specific categories or in general. It’s important to always look at what the credit cards you’re considering offer in order to make an informed decision that will benefit you the most.
Do Credit Cards Affect Your Credit Score?
Yes, credit cards entirely affect your credit score. Not only can the amount you spend and pay back affect your credit score, but so can the amount of cards you have, closing accounts, and how long you’ve had them.
Keeping Your Credit Card Secure
Fraudulent activity on a credit card is an ordeal. However, it is much easier to deal with than debit card fraud. That’s why it’s always important to take care of your debit card information. Scammers or criminals may try to gain your information to spend your money. Here are things you can do to avoid that:
Watch Statements & Balance - Sometimes, despite our best efforts, we may be the victims of credit card theft or fraud. To make sure you don’t fall victim, or recognize it immediately, it’s a good idea to stay vigilant when it comes to account statements or transaction logs on your banking app. The earlier it’s noticed, the less there is to lose and the easier it is to fix!
Freeze Your Card - If you ever lose track of your debit card, be sure to freeze it as soon as possible. Freezing your debit card will prevent any transactions from being made using it until you either find it or decide to cancel and receive a new one.
Online Safety - Never enter your credit card information on untrustworthy websites. Always be sure that a website is secure before you buy anything on it.
Getting a credit card is a valuable next step in your financial life, unlocking so much potential! Overall, credit cards are convenient and help you build your credit for when it’s time to make larger purchases, like a house. However, you must recognize you’re spending money that you will have to pay back at some point. It may not feel like real money, but it is real money.
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So informative! This is so helpful, especially for teens who have no clue about the financial world! Love it.