Choosing A Credit Card
What is a "credit card" and how does it work?
People are often confused as to what a credit card is. It's a piece of plastic. But in fact, when you get a credit card, you have signed an agreement, which is called a retail credit installment agreement. That agreement obligates you to handle the obligations with respect to the items that you charge in a businesslike manner. Your Visa card or your MasterCard and other department store cards, gas company cards - these are generally credit cards that are retail credit installment agreements.
What is a "charge card", and how is it different from a credit card?
There's another kind of plastic that is called a charge card. The charge card is not a retail credit installment agreement, because you don't have the same options. Under a charge card you're required to pay the balance from the preceding month in full. Examples of charge cards would be the typical American Express Card or Diners Club Card. While they also now have credit card options for some individuals, they are typically charge cards.
Do I need credit cards?
An individual needs to determine whether or not they need a credit card. In my opinion, in today's complex world, everyone should have at least one credit card, if for no other reason than that having a credit card helps them build a credit history. Today, when you want to buy a house or buy a car, or buy a large-ticket item that might require you to borrow money from somewhere, your credit score is going to be checked, and your credit record is going to be checked. If you don't have a credit card, you're not going to have a credit history. And in today's complex world, I think it's essential for people to have a credit history.
What is "APR"?
In finances there's a lot of alphabet soup. One of the frequently quoted acronyms is APR. APR stands for Annual Percentage Rate. Annual Percentage Rate is about the fairest method to evaluate and compare interest rates that you're going to pay from one company to the next. That is because it is the fairest comparison is it takes into account not only what you're borrowing, but the fees that you might have to pay, either in advance or during the life of the loan, to determine what the true interest rate is.
