Credit Card Basics

As you grow up, head off to school, or get a job, you find out just how many things you end up having to buy: things like books, laundry baskets, food, and so on.  Things you can pay for those things with two types of money: debit or credit.  Debit is money that comes from a personal bank account. Credit is money that is lent to you by your bank. For example, let’s say you’ve been using a credit card. Each time you use that card to buy something, say a new couch, your bank is loaning you the money.

Sounds good, right?  It is, so long as you keep in mind that the bank isn’t giving you this money for free. They expect you to pay a certain amount of money each month, called interest, if you don’t totally pay off the balance by the due date.  Now, assuming you continue to spend via credit,  it can get very expensive very quickly, especially when factoring in the high annual interest rates, or APRs, that are charged by these companies.

Of course, the best thing is to pay off your balance in full each months.  That way, you’ll never pay a cent of interest.  Still not quite sold on credit-cards?  With all their flaws, are they really worth using? The short answer is this: as long as you avoid running up a balance, definitely!  And, if you learn what rewards are available with your cards, it could even pay for you to use your card.  

What rewards?  Most credit cards offer their users rewards, like cash back or airline miles, each time they make a purchase. For example, let’s say your credit card comes with 2% cashback. That means if you spend $500 per month, you’ll automatically get $10 back on your next statement, no questions asked.

And, as if that weren’t enough, responsibly using a credit card also allows you to build a great credit score. This is a calculated number between 300 and 850 that summarizes your credit history, covering everything from your payment history to the age of your accounts.  Most credit cards actually require a credit score of at least 600, plus at least $15,000 in annual income and a reasonable debt payment to income ratio, generally below 36%.

So, if you have a credit card, and you can pay that balance off every month, then yes, using a credit card to pay for things can be a great way to handle your finances!


Source : Youtube