What are Credit Cards?

Do you have Bad Credit, would you like to improve it? Did you know that you can achieve the Perfect Credit Score by using Credit Cards? You have come to the right place to Learn how to Boost your Score.

A credit card differs from a debit card. Debit card charges are usually immediately deducted from a checking account. Credit card charges accrue, and a monthly statement is billed to the user. Credit cards allow consumer to purchase big-ticket items immediately. A credit card affords the consumer an immediate loan.

Credit cards are not free money. When deciding to use a credit card penalties, fees, and interest rates need to be taken into consideration. Consumers can end up in serious debt if credit card are not handled responsibly.

How do Credit Card Fees Work?

Let’s take a look at credit card balance fees, penalties, and interest rates.

• Annual fees: Many credit cards charge a yearly annual fee. The median charge ranges from $95 upwards of $500.
• Monthly interest rate (APR) on outstanding balances in 2021 average 15.91%. However, they can be as high as 29% or even higher.
• Penalties charged on late payments can range up to $36.
• Cash Advance Fees: Money can be easily withdrawn from credit balances using an ATM. However, cash advances carry hefty fees. Individual bank rates vary, but the transaction fees can range from an APR of 2.5% to 3.5%, or a one-time flat rate. The APR on cash advances is higher than the normal balance. There is no grace period the interest accrues immediately.

Financial experts encourage card holder to never carry a balance over to the next month. They recommend paying any outstanding balance before the payment due date. For example, of APR, a $1000 charge can rack up $350 in interest over a year’s time.

How Credit Cards work to Raise your Credit Score.

• After a timely payment is made on your balance, the credit card company will send an update to the credit reporting bureaus. This process can take weeks to update your score, but will raise your score by a few points.
• There are advantages to acquiring more than one card. If one card can raise your score a few points each month, then two cards can double the points.

However, it is important to maintain a credit card utilization (CUR) ratio on balances. The general rule that financial experts recommend is to keep credit utilization under 30%. Anything above that percentage flags your account as high risk and will decrease your score. For example, on a $1000 credit limit, $300 or less should be utilized by the card holder.

How the Use of Credit Cards can be Beneficial?

• The proper use of Credit cards can boost your credit score enabling the consumer to secure a loan to purchase a home.
• Credit card use affords consumer protection on unwanted purchases and consumer fraud.
• Accident and travel insurance coverage.
• Many cards offer perks, such as money back on purchases, Frequent-Flyer Miles, 0% interest and reward programs.
• Allows users to track expenses.
• The ability to place a hold on a hotel or rental car.

Secured Credit card

A secured credit card is backed with a consumer self-funded deposit. The credit card company will require an amount of cash equal to the credit limit extended to the card.
The pros:

• This allows consumers that are not able to qualify for an unsecured card to establish credit.
• The payments made to on a secured card are reported to the credit reporting bureau’s, the same as an unsecured card, allowing the cardholder to establishment credit.

The Cons:

• Requires a cash deposit, held by the bank to secure the credit limit.
• May have higher fees than a secured card.
• The average secured credit limit is usually low. It may range from $200-500.

Does Credit Card use have a Downside?

A person may wonder how there could be a downside to free money.

• Credit cards used irresponsibly can lead to serious debt.
• Late payment will decrease the credit score. Almost every industry requires a credit check as part of their screening process. A low credit rating can prevent consumers from the ability to purchase a home, rent an apartment, obtain a job, be declined for insurance. Once payments become sporadic or late the lender will add late fees and penalties which increases the monthly payment due.
• A consumer can acquire too many credit cards. The debt may be more than is comfortably affordable. Missed or inconsistent payments lead to stressful harassment calls from debt collectors

Conclusion

The benefit of effective credit card management is that can build a profitable future for the consumer. A credit report is a snapshot of a person’s lifestyle. It helps potential creditor to determine credit worthiness. Like any acquired loan, repayment needs to be timely and consistent. A high credit rating acts as a privilege and opens doors. A low credit rating acts as an impediment to the good life. A good score can be quickly destroyed by making wrong decisions or fraudulent activity on one’s credit file. Therefore, it is extremely important to regularly review your credit file by requesting a copy of your annual report. In many states, an annual credit report is offered free of charge. Managing one’s credit is a heavy responsibility that requires knowledge and wisdom. It is important to educated yourself on the rates, fees, grace periods, and penalties before applying for a credit card. Research the perks and choose a card that matches your lifestyle.