Credit cards have moved on to become almost a necessity today. It's rare to find people having no credit card. In fact most of the people have more than one credit card. However, possessing a credit card is not enough. You also need to understand how to use it properly. Sometimes credit cards can become a pain e.g. when you get into a debt trap.
Debt Consolidation And Credit The first thing to understand is the fact that credit card is not free money or a goldmine that you just discovered. It's simply a loan that you are taking from a bank or a financial institution and you need to pay it back soon. You must understand that if you don't pay this amount back in time you will have to pay an interest on the amount. This interest is calculated using APR (annual percentage rate) i.e. the interest rate charged on the outstanding balance on your credit card account. This is calculated and applied on a monthly basis. APR is one of the key features one considers when choosing a credit card.
Check the fine print in your credit card terms and conditions. Many credit card companies reserve the right to raise your interest rate if you make a late payment to other creditors, not just to them. The theory is that if you're late on other payments, you're a higher credit risk. The truth is that this is just another revenue stream for credit card issuers. The solution Pay all your bills on time.
Check Credit Rating As soon as you receive your credit card, read through all the instructions provided on it. Thing like protection against fraud, reporting loss of credit card, reporting incorrect charges, fees & other charges, contact information, change of address instructions etc are all on there. You might like to keep a note of contact numbers separate from your credit card especially the one for reporting lost credit card. Do not leave important things like signing on the back of credit card for later.
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Improve Credit Rating Take note of various types of fee/charges etc that you can incur. You will find that the fee/commission on using some of the features is very restrictive e.g. withdrawing cash using credit cards is a sure no-no unless you are in a very difficult situation and that is the only option left before you. There is hefty charge/fee on cash withdrawals. Similarly, transactions in other currencies end up being a bit expensive too (not too much though).
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Credit Online Rating Report Develop good spending habits by refraining from using your credit card all the time. Use cash if you seem to be approaching your credit limit on the card. In fact try not to breach 70% mark on the credit limit. This should act as a warning against credit card debt trap.
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Credit Score Rating Scale Also, it's imperative that you understand the importance of credit ratings. This is the rating which keeps developing in the background as you use your credit card. If you don't pay on time you get negative points for it and if you pay regularly and do not overspend, you get positive points. This rating is developed by various credit bureaus on the basis of information received from credit card companies and is available to all other financial institutions and banks on request. So, when you apply for a mortgage or a car loan or for that matter a new credit card, the bank/institution gets your credit rating from the credit bureau as the first thing. If you have a good rating, the things will go smoothly for you and if you have a bad rating then you might be denied that mortgage that you were eagerly looking forward to. Thus this rating is used to ascertain your credibility and you must try and maintain a good credit rating always. In fact, credit cards are a good way of developing a good credit rating.
Credit card and even more so Store card interest are set at exorbitant rates for one reason alone, companies make their money from the consumer’s inability to settle their card balances. Credit card debt is unsecured, whereas other debt like your mortgage is secured (your home acts as security against your debt). With credit card debt, there is no backing security, which means that credit card debt is high risk for banks and hence the high interest rates
Bad Card Credit Credit People A proper understanding of credit cards will thus help you in using them properly and to the best of your interests.
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