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.
How do I get a credit card?
If an individual hasn't had any credit to date, how is somebody going to give them a credit card, because there is no credit history to base it on? There is a way to get a credit card to initially begin establishing credit. The easiest cards to get are cards for gasoline companies, department stores, or other types of stores. If you don't feel comfortable having a bunch of different cards, or you don't want a gasoline card, there's another way that somebody who hasn't built a credit history can go, and that is to get a secured credit card. If you don't have a credit history, you can go to a bank that offers credit cards, and tell them that you want a credit card and you're willing to secure it with a bank deposit. It could be two hundred fifty dollars, or five hundred dollars; whatever your line of credit is, it would be secured by a bank account, so that the credit card issuing company is not at risk. As long as you handle your credit in a business-like manner, and responsibly, then you should be able to get a credit card later on, after a year or so (maybe less, maybe a little more) without having to have it secured.
How should I choose a credit card?
Credit cards are very complicated today. Every company that issues them has different varieties in terms of what they offer and what the interest rates are. So, it can be very complicated to the average consumer to determine what is best for them. It's not just the decision 'will this organization give me credit?'. It's this the credit card that is right for me? As for me personally, I'm a mileage junkie. I like to accumulate miles and I utilise those miles to fly places on vacation. To my wife, getting cash back is important because she says "I am going to be spending this money anyway," and getting a rebate of cash is important to her. These are issues that have to be evaluated. In addition, you have to evaluate what would happen in the event that you pay late. You can get a credit card that might have a lower interest rate, but if you don't handle the credit responsibly, the credit card company has the option to be able to increase the rate to the maximum amount that they're permitted to do, and these costs can be quite substantial.
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.
