9 min read

What You Need to Know About Credit Cards

Andrew Moran
Professional Writer & Journalist
master card

Cash, debt or credit? That is the question posed to millions of consumers every day at the store. 

The concept of a credit card actually dates back to the late 19th century, when author Edward Bellamy introduced the term to the American vernacular. It was not until 1921 that companies started to issue charge cards, though it was for corporations, the affluent and the elite at the time. 

Fast forward to 2016 and it seems like everyone has a credit card. In fact, there are approximately 500 million credit card accounts in the United States today. On a global level, the number of pieces of plastic in our wallets is estimated to be in the billions. Despite the level of fiscal abuse and financial mismanagement, credit cards continue to be ultra-popular, especially as the methods of usage continue to evolve, whether it's tapping or scanning our smartphones. 

Indeed, credit cards are a great invention in the marketplace. When you utilize them wisely and prudently, it can be a sublime monetary tool to track your budget, complement your personal bank account and curb your spending. When you swipe, insert or tap a credit card foolishly then it can be the pecuniary bane of your existence. You can liken a credit card in today's times to Faustian proportions. 

With a credit card, there are numerous advantages and disadvantages. Everything from interest rates to ease of use, you can, and will inevitably, come across the pros and cons of employing credit cards as instruments of banking transactions in your day-to-day life. 

You could be a young consumer just entering the marketplace or a senior citizen looking to modify your personal finance. There is a lot to know about credit cards as you establish, alter or improve your banking solutions.

According to legendary personal finance expert Dave Ramsey, obtaining your first credit card is similar to your very first kiss in the sense that you will always remember it. 

"Your first credit card is a lot like your first kiss. Everyone tells you how cool it is. You think you know what you’re doing—after all, you’ve seen people kiss on TV—but you really have no idea. Before you know it, it’s all awkward and messy and she’s mad because you haven’t returned her calls. Well, regardless of how good or bad your first kiss experience was, you probably remember everything about it. And, oddly enough, that’s a lot like your first credit card."

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What You Need to Know About Credit Cards 

Here are four things you need to know about credit cards when opening a bank account: 

Understanding the Terms & Conditions 

When you submit an application for a credit card, there is a lot of fine print in the application itself. When your application has been approved by the bank or credit card issuer, there is a lot of fine print in the contract that you have to sign. When you receive your credit card in the mail, there will be several pamphlets and documents that will come with a lot of fine print. 

Although it seems like a futile endeavor, it is always best to read the fine print, comb through the legal documents and understand the various terms and conditions pertaining to your credit card. Everything from interest rates to annual fees, you should have a clear idea as to what you're getting into by having a Visa, MasterCard, American Express, Discover and other cards. 

Yes, it can be hard to comprehend or even read the terms and conditions, but it's worth it. 

Always Make Payments to Avoid Interest 

At the height of the economic collapse, 34 million Americans conceded that they paid their credit card bills late. The ultimate consequence of this was paying additional interest on their balance. 

Reportedly, as of the first quarter of 2015, 10 percent of credit card holders were delinquent by 90 days or more. This means that they had not made a payment in at least 90 days. Not only is this bad for your overall credit score, it is always a terrible way to pay more money on your $25, $250 or $1,250 purchase, especially if you're facing sky high rates of interest. 

Simply put: you must always make the monthly payments in order to avoid interest. Otherwise, your monthly statements will snowball into something enormous and you get trapped in debt. 

Know What You're Using the Card for 

Once teenagers walk on a college campus, they are inundated by the credit card companies, being urged to sign up just because. Meanwhile, other older and more indebted consumers face a barrage of advertisements, marketing materials and junk mail informing them that they are pre-approved for a credit card or they can extend their credit limit. 

It can be nice to be offered all of this credit, but the key question is: do you need this much credit? The other vital question to ask: what are you using your credit card for? When you open a bank account, do you really need to have three credit cards immediately?

This is an important distinction to make as you seek out the best cards available for your banking needs. It is true that studies show that a majority of consumers will stick with one credit card their entire lives. But other reports suggest that some consumers will try to get their hands on as much credit as possible. 

It can be dangerous to have your wallet stuffed with three, four or five credit cards. As long as you have a gameplan as to what you're going to use the card for – major purchases, trips to the grocery store or online shopping – then you won't face the consequences of rash choices. 

Never Borrow More than 20% of Net Income 

If you want to be a successful credit card holder who reaps the rewards far more than the punishment then here is the critical factor: never borrow more than 20 percent of your net income. 

You will witness first-hand people who use their credit card all of the time, whether they're impecunious or wealthy. But this is risky behavior to maintain throughout your life. 

Here is an example: if you earn $100,000 net income every year then you should never go above $20,000 in credit card purchases throughout that year. Ditto for someone earning $20,000 a year. 

The Advantages & Disadvantages of Credit Cards 

Despite the bad reputation that credit cards have gotten over the years, there are a wide variety of advantages and disadvantages. Credit cards can save you money, but credit cards can also cost you money. Credit cards can help you stick to a budget, but they can also be the harbinger of your budgetary banking doom. 

Let us first take a look at the advantages of employing credit cards: 

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They Are Convenient 

Credit cards can save you a lot of time at the store and can prevent you from carrying around a lot of cash for your Saturday shopping chores. Rather than visiting your personal bank account to withdraw money, holding $200 in your wallet and then searching for coinage to pay for your transaction, you can simply whip out your piece of plastic and pay for your item(s) that way. How convenient is that? 

Holders Have Zero Liability 

Depending upon your jurisdiction, account holders have zero liability for unauthorized transactions up to a certain amount prior to the report of loss or theft of your credit card. This is truly one of the best advantages of maintaining a credit card, especially in an era of prevalent identity theft. 

You Can Dispute Purchases 

As you peruse your monthly statement, you come across a transaction for a DVD of the 1974 motion picture "The Conversation" as well as a transaction for a box of chocolate bars in Jamaica. You did not make these purchases, which means you can easily dispute them by contacting the issuer or your financial institution. For the most part, banks will easily wipe this disputed transaction clean without any hiccups. 

Cashback & Other Rewards 

Based on the credit card that you select, you can receive an array of perks. Everything from cash back to points for vacations, credit cards offer you an incredible number of features, and they keep becoming more attractive as time goes by. 

Build an Impeccable Credit Report 

One of the best ways to build an impeccable credit report and score is to use your credit card. If you're someone who uses your credit card a lot but pays all of the bills on time then you will put together an extraordinary credit report. Of course, this will help you obtain an auto loan, improve your odds of being accepted for a mortgage or receive a line of credit for your home renovation. 

Now, let us take a look at the disadvantages of using a credit card: 

Paying Interest on Your Balance 

Consumers, whether they're in North America, Europe or Asia, are using credit more than ever before. Access to easy credit is ubiquitous, but it is also causing many consumers to deepen their debts, particularly with high interest rates. 

If you are someone who uses your credit card for nearly every non-discretionary purchase and banking need then you risk putting yourself in financial jeopardy. This is especially true if you get too far behind and the interest payments become higher and higher with each passing month. 

Unexpected Fees 

Are you interested in getting a cash advance from your credit card? Well, be ready to fork over an unexpected fee of two to four percent. Are you using your credit card in another country? Well, you'll come back to a monthly statement that is complemented by exorbitant fees. 

One of the disadvantages of having a credit card is all of the unexpected fees you may face. 

The Teaser Rates 

And this is why it is important to read the fine print and understand the terms and conditions... 

One of the ways that credit card companies nab clients is by offering low introductory rates. However, the caveat is that they last only for a limited time. This means when the teaser rate expires, the interest rate charged on your balance will suddenly spike. You must be careful of these coquettish teaser rates that may burn you three, six or 12 months down the line. 

It is only a matter of time when cash becomes extinct and we rely entirely on credit cards, mobile payments and our cardiac rhythms (or heartbeats). The war on cash is being amplified, and more consumers today are relying entirely on their Visas or MasterCards for their banking solutions. 

As long as you are conservative and fiscally prudent, you can take full advantage of credit cards. Paying off every monthly bill, seeking out the best rates and being careful how you use your credit card will ultimately ensure that you get the best experience possible out of your card. 

Remember, a knowledgeable consumer will help you maximize the rewards of credit cards. 

Andrew Moran Professional Writer & Journalist
I am a full-time professional writer. Prior to my self-employment, I worked as a reporter for Digital Journal covering the politics beat and The Toronto Times reporting on the city’s entertainment scene. I currently write mostly about business, marketing and finance.
I am a full-time professional writer. Prior to my self-employment, I worked as a reporter for Digital Journal covering the politics beat and The Toronto Times reporting on the city’s entertainment scene. I currently write mostly about business, marketing and finance.

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