There
are many credit card companies trying to give you credit. Before
you take that new T-shirt or water bottle, you should be aware of
a few important facts.
You
get credit by promising to pay in the future for something you receive
in the present. It is the consumer's ability to assure the lender
that the money will be repaid.
Credit
is a convenience. It lets you charge a meal on your credit card, pay
for an appliance on the installment plan, take out a loan to buy a
house, or pay for schooling or vacations. With credit, you can enjoy
your purchase while you are paying for it or you can make a purchase
when you are lacking ready cash.
But
there also are strings attached to credit. It is essential that one
know the dangers of credit abuse. What is borrowed must be paid
back.
If
you are thinking of borrowing or opening a credit account, your first
step should be to figure out how much it will cost you and whether
you can afford it.
All
creditors, whether it is a bank, credit card company, retail store,
or car dealer, must state the cost of their credit in terms of the finance charge and the Annual Percentage Rate (APR).
- The finance
charge is the total dollar amount you pay to use credit. It
includes interest costs, and sometimes other costs, such as service
charges.
- The annual
percentage rate (APR) is the percentage cost or relative cost
of credit on a yearly basis.
Each
issuing bank or lending institution sets its own interest rates and
fees for credit cards. Shop around for the best deal. Do not take
the first card that offers you a free gift. That free gift could cost
you a lot of money, in higher interest rates and fees.
Be
aware of your grace period. Most grace periods offer you the ability
to pay your balance interest free. A grace period is only available
if you pay your bill in full and if you are not carrying any balance
from the previous month. A grace period does not apply if there is
an outstanding debt.
Grace
periods never apply to cash advances. Interest on cash advance
starts to accrue from the very first day. Plus, some institutions
charge an extra 2 percent or more for a cash advance This is in addition
to the regular interest rate.
Pay
as much as you can. Lenders always ask for the lowest possible
payment. By paying just the minimum payment due each month, you will
run up your interest charges and remain in debt.
When
can too many credit cards hurt you? If you have too many credit
cards, it can prevent you from getting other loans. Even with all
your accounts up to date and or at a zero balance, some creditors
may deny you from receiving new credit.
Potential
lenders will look at your credit report. When they see how much
potential credit you have, creditors may assume you would be unable
to pay back your debt if you used your credit cards.
What's
wrong with taking the credit card offers that are mailed to me? You may be offered a bankcard through a college, a charity, or other
organizations. Before applying for the card, find out if they bargained
for a great deal for their members or themselves. Some organizations
receive 0.5 percent of whatever you charge on the card or a payment
for everyone who signs up. This may make the card more expensive for
you.
A
credit card only make sense if the interest rate is competitive, it
has a grace period and no annual fee. If you feel you want to
support your college, charity, or any other non profit organization,
donate money. At least the donation is tax deductible.
Temple
University offers this consumer information as a service and does
not recommend any particular credit card companies or lenders to students.
