Table Of Content
What Is a Credit Card?
A credit card is a type of credit facility. It makes it possible for customers to buy goods and services. Financial institutions give credit cards to customers so they can borrow money up to a specific limit. The credit card issuer decides how much you can spend on your card based on your income and credit score.
A credit card is a valuable tool for managing your money in need. You may use it to access cash, buy things, and then pay it back later. The best aspect is that credit cards are widely accepted and, when used wisely, provide excellent financial independence.
Benefits And Drawbacks of Getting Credit Card
Pros | Cons |
|---|---|
Rewards and Bonuses |
High APR |
Easy Credit Access | Overspending |
Build Your Credit
| Fees |
Protection | Credit Card Fraud |
Track Spending |
- Rewards and Bonuses
Most credit cards provide tips for using them. These include cashback and rewards points that may be redeemed as air miles or used to pay card dues.
Lenders discount credit card transactions, such as aircraft tickets, holidays, and significant expenditures.
- Easy Credit Access
The best thing about a credit card is that it makes it easy to get credit. Credit cards work because you can use them now and pay for the things you buy with them later. When you swipe, the money doesn't come out of your account. You just have to pay for it later.
- Build Your Credit
You may improve your credit rating by using a line of credit to buy purchases and pay them off on time. This will increase the likelihood that lenders will lend to you and give you a decent interest rate.
- Protection
Protection is one of the most important reasons to use a credit card. Most of the time, credit card purchase protection covers things you buy with your credit card for a certain amount of time.
With this vital coverage, you can get your money back, or a new item you purchased gets broken or stolen. This usually happens within 3 to 4 months.
- Track Spending
You can check your transactions on your online credit card account by logging in. Some credit card issuers give detailed spending reports that break down your purchases by category and show you where you spend the most and avoid budgeting mistakes.
- High APR
If you don't pay your bills by the due date, the amount is added to your following account, and interest is added.
This interest builds up over time on purchases made after the interest-free period. The interest rate on credit cards is relatively high, up to 36% per year.
- Overspending
Most people with a compulsive buying disorder use their credit cards to pay for their out-of-control spending.
Most of the time, this leads to credit card debt because people who shop too much spend more than they can afford to get their “fix.” Therefore, it's also called a credit card addiction.
- Fees
At first glance, credit cards seem simple and easy to use, but they have several hidden fees that can add up over time.
Credit cards have many taxes and fees, such as late payment fees, joining fees, renewal fees, and processing fees, and it's an aspect to consider when choosing a new card.
- Credit Card Fraud
Credit card fraud is when someone uses someone else's credit card information in a way that is against the law or for unwise personal spending. Credit card scams are identity theft and have become more common in recent years. Scammers use the information on your card to do illegal things and make purchases from your account without your knowledge.
You must check your credit card bill every month to ensure that it shows your purchases correctly and that there are no signs of fraud. Scammers like to take advantage of credit cards. It's also recommended to set some fraud alerts.
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What Can I Use a Credit Card For?
You can utilize a credit card's available line of credit for various purposes like making purchases, debt transfers, and/or cash advances, etc.
Still, you must repay the loan's principal at some point. When using a credit card, you must pay the minimum amount due on the balance by the due date each month.
You can use the credit card for various purposes:
- Travel expenditure
- Car rentals
- Online shopping
- Overseas purchases
- Bills
- Groceries
In the same way, you would use a debit card or cash, and you may pay using your credit card. The distinction is that, unlike when using a debit card, the money does not immediately leave your bank account.
Instead, a set amount of time after the date of your purchases will pass before you receive a statement outlining the amount you must pay back. Then you must pay back the credit card company.
Credit cards are among the best forms of borrowing money; they have several advantages that make them the ideal way to pay for high costs, from incentives to purchase protection to 0% fraud liability.
Should I Get a Credit Card?
A credit card can be a great way to build credit and pay for purchases. Still, depending on your situation, it can hurt your credit score and lead to debt. Opening a credit card is a big decision that should not be based on a welcome bonus or a unique card design.
Instead, it should be based on your current ability to pay off charges and the positive effects it can have on your credit score and finances. It's recommended to limit the number of applications before applying.
When New Card Make Sense | When New Card Doesn't Make Sense |
|---|---|
You Need to Build Your Credit | You Are Not Able to Pay the Fixed Expenses |
Rewards, Cashback and Travel Miles |
You were laid off |
Reduce debt
| You've got enough debt already |
You recently filled out a credit application | |
You Fear Overspending |
When It May Make Sense to Get a Credit Card
A credit card is one of the most common ways to build credit and pay for big purchases. Plus, many of them have extra benefits, like the chance to get cash back or miles.
But before you apply for a new card, you should take a moment to consider whether now is the right time and ask some questions when choosing a new card.
Here's when it may make sense to get a new card:
- You Must Establish Credit – If you lack a credit history or have bad credit, getting a new credit card can help you improve your credit rating. Since credit cards demand that you be 18 years old to start your own account, now is the perfect moment to apply for one. Opening a card at age 18 enables you to jump-start your credit-building process to develop a solid credit history as soon as possible.
- Utilize Points, Cashback, and Travel Miles – One of the best features of using a credit card is that, with most cards, you'll collect rewards on each and every purchase you make. There are many different incentive options, but the most popular ones are cash back and travel miles or points.
- Reduce debt – 0% intro APR cards will not charge interest on the balance you transfer from another credit card for a predetermined time, often between 12-15 months. This might result in significant savings, depending on the amount of existing debt you have and your current interest rate.
When It May Not Make Sense to Get a Credit Card
There are cases when getting a new credit card may not be a good idea, here are 5 situations when you may want top skip:
- You Are Not Able to Pay the Fixed Expenses – You Have – The risk to your credit increases if you apply for a credit card when you don't have enough money to pay your rent, tuition, bills or groceries in full each month.
- Layoffs: Unfortunately, the wave of layoffs that took place in 2022 is not expected to fade soon and we are expected to see the trend continue into 2023. Reduced income can hinder your ability to qualify for a card because it indicates you have insufficient finances to pay off debt, which card issuers take into account when determining your odds of acceptance.
- You've got enough debt already – Many of these recent graduates can't afford to add further monthly obligations on top of their loan payments. Similarly, those who owe money on a mortgage or an auto loan may elect to cut up their credit cards until they have paid off their present debt.
- You recently filled out a credit application: An inquiry will normally show up on your credit report when you apply for new credit products, which can lower your credit score. The drop in your score may make it more difficult for you to qualify if you recently applied for a number of credit products.
- You Fear Overspending – Those with poor spending habits who obtain credit cards run the danger of experiencing severe financial hardship.
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