Over 80% of the households in the United States have at least one credit card, mostly because they offer convenience and a feeling of added security over other payment methods. After all, most of us have watched television and seen the commercial of the lady walking down the beach, when her wide brimmed, light blue sun hat is caught by a passing gust of wind and tossed into the sea. This particular lady got brand new hat, courtesy of the credit card she used for purchasing it.
There are four very popular, “major” credit cards: Mastercard, Visa, Discover and American Express. The first two are accepted anywhere that credit cards are taken, but the remaining two are not so lucky, because the attached fees that a merchant is required to pay for accepting them are significantly higher than Mastercard and Visa. These cards are issued by a bank or other type of financial institution and carry a limit to the amount that you may charge. Monthly payments need to be made onto your card in order to keep your account in good standing and to increase your credit limit (or amount of money they allow you to spend).
Store credit cards are basically the same thing, except you can only use them at one particular store (or chain). The limit set by store creditors is usually significantly lower than that of a major credit card at the beginning, increasing as you make timely payments. Perks are often granted to those who open cards (coupons and offerings of 10% off) and who continuously support the store by using the credit card frequently.
Student credit cards are available in both store and major form, coming with a very small credit line to “teach” students the uses and values of credit. This card’s credit limit also has the ability to increase, as long as the account is in good standing.
Now that we have covered the basics, we’re going to cover the good and bad uses of credit cards:
Good Uses
- Emergency car repairs; so that you can get to work to pay the bill
- Only charge what you can afford to pay each month, unless it’s an emergency
- Using the 30 day period to save the money to pay off the balance
- Paying the electric bill, or it will be shut off
Bad Uses
- Putting your weekly grocery bill on your credit card, unless you pay it off each month (who wants to pay interest on food?)
- Using it to pay for you vehicle’s fuel each week (again, unless you pay it off each month)
- Buying new rock-climbing gear because your friend went parasailing, and you have to top that.
The basic rule of thumb for credit card use is to not buy something you wouldn’t buy unless you had the cash for it. Try your hardest to pay off the balance in full at the end of each month (American Express doesn’t offer any other choice with its classic green and gold cards), because the interest that accrues does so quite quickly. Before you know it, well over half of your minimum payment will go towards the interest, and you’re left with a high balance that’s going nowhere fast.
You need credit to survive in the world, as not many homeowners paid cash for their houses. Paying careful attention to your spending habits will lead to a happy bank account and a sparkling credit score.
