By Deidre Davis
Credit cards can be financially viable resources — when used responsibly. However, many of us shy away from credit cards. After all, they are tempting to use when you’re longing for new clothes or something else that caught your eye. Shopping sprees aside though, you might be surprised to find that credit cards can actually help to improve your financial standing. To reap the benefits of a credit card, you’ll need to know how they work and how you can use them to make sure they work for you. That’s where we can help. Below, we’ve listed some of the scarier notions you might have heard about credit cards and described how they might not be scary after all. Instead of a credit card being an elusive financial tool that goes bump in the night, our tips will help you face those fears this Halloween season.
Credit Cards Mean Debt
That could be true, but it’s all up to you. Credit cards are loans, which means there is certainly the potential to accrue debt while using them. The caveat is that you have control over that. If you are using a credit card, make sure that you only spend what you can afford. Following that route, you will be able to pay your credit card balance in full when you receive the bill each month. Paying in full each month means that you won’t rack up credit card debt which also leads to our next tip …
Credit Cards Cost Money
Because credit cards are loans, they do have an interest rate and monthly payments. Opposed to typical loans, the interest on credit card purchases is not added immediately. Rather, you have a grace period. Let’s say that you make a few credit card purchases in one week (i.e., gas, groceries, toiletries). Those purchases are added to your monthly credit card statement or bill. You then receive the statement detailing how much money you owe for that statement’s billing cycle and your due date, which is usually 30 or so days after you receive the statement. The 30 days is referred to as your grace period. As long as a payment of your total statement balance is made prior to your due date, you won’t pay a penny of interest.
So, what happens if you are unable to pay the total balance? That’s okay, too. Your credit card statement also details a minimum payment. Instead of paying the entire $600 balance, you could pay the $50 minimum payment. If either payment amount is made on time, your credit card will remain in good standing. You will, however, be charged on the remaining unpaid balance. Depending upon your card’s interest rate, that amount could become exorbitant. As such, we recommend paying the balance in full each month to avoid interest charges.
Credit Cards Hurt Your Credit Score
Like the previous tips, this fear is avoidable based on how you use your credit card. If your credit card debt has reached the maximum limit on your credit card, your score can be negatively impacted. If you’ve heeded our advice thus far and you’re paying off your credit card balance in full each month, you can actually improve your credit score. To establish a credit score and to maintain a good score, you’ll need credit history. Credit history is evidence that you are using credit responsibly. Payments to your auto loan prove as evidence, but only when that loan is open. Once you’ve paid off your car, the history will no longer show. Credit cards are revolving lines of credit, meaning that you will continue to build history year after year unless you decide to close your credit card. For those that are beginning to establish credit or repair credit, this is a great way to build positive history.
A credit card can serve many purposes: some positive and some negative. It all depends on how you use it. With these tips, you won’t need to worry over your credit card and can use it to your financial advantage.