Venturing into the world of credit cards (and credit debt) can be scary. But with the correct approach, plus some restraint, credit cards can be a helpful financial tool. Before you apply for a credit, you must know the fundamentals; understand the benefits, as well as, the potential pitfalls. Here are five things you need to know about credit cards.
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1. There’s no perfect number of cards you “should” have:
According to myFICO.com, the average consumer has nine credit cards. With that said, there is no perfect number of credit cards that you “should” have. The number of cards you apply for, and use, should be dictated by your individual situation.
The goal is to try as much as possible to only charge what you can pay off by the time your balance is due. Carrying a balance, while sometimes necessary, is an easy way to put yourself in a position where you’re paying the credit card companies excessive amounts of interest.
2. You must understand each card’s interest rate:
Credit card interest rates can range dramatically — from 0 percent (usually a limited time offer) to as high as 30 percent. Here are some factors that credit card companies consider when determining your interest rate; your credit score, income, current debt load, assets, number of credit inquiries, payment history – just to name a few.
Consumers with a history of proving they can pay off their debt in a timely fashion will receive the best (lowest) rates.
3. Comparing cards is a must:
When it comes to credit cards, you as a consumer have a ton of options to choose from. There are several high quality review sites that allow consumers to determine which card is best for them. Compare Cards is an excellent resource.
4. Making the minimum payment can be dangerous:
Here’s the bottom line; paying only the minimum keeps you in debt longer, costs you significantly more money in interest payments and will most likely hurt your credit score. Doesn’t sound too appealing does it?
By paying only the minimum payment, you’re giving yourself temporary relief. But you’re also putting yourself in a position to pay more interest charges later on. After all, the longer it takes to pay off your balance, the more you will pay the credit card companies in interest fees.
5. Not using a credit card could have a negative impact on your financial future:
While that might sound weird, let me explain. As mentioned earlier, the only way to establish a strong credit score is to have a track record of having and paying off borrowed money (in a timely fashion). But it’s very difficult to pay off borrowed money if you don’t have any. This can be especially harmful for young people who are unlikely to have a mortgage, auto loans, or other forms of debt that help build credit history.
While credit cards can be extremely costly for those who don’t use them correctly, there are necessary in most cases. Just be sure to only charge what you can afford to pay back!