What is the deal with Credit Cards??

A credit card is your first shot at building up some credit. The credit card will have a "limit," say $500. You can carry up to a $500 spending balance. If you've spent money on the card, you'll get a bill every month, that will list a minimum payment. You can pay the min., but it usually just covers the interest on the balance. You can also pay anywhere between min. and the full balance off.

It's basically access to a mini-loan, that you can spend anywhere.

Also, you have a "credit profile," that will list to lenders your credit activity. Credit cards, auto loans, cell phone contracts, mortages are listed on your credit report. Anytime you apply for a loan, or credit card, the lender will access your credit report, which will give them a snapshot of your payment history.

So if you make your payments on time for everything, that will help build good credit. If you're late on payments, or don't pay at all, you get bad credit.

So...a credit card is a good step for you, ONLY if you're responsible for it. Don't spend the money on the card if you can't afford to pay it off. When I was 18, I got a couple of credit cards, ran up balances, and didn't pay them for a while, and it f'd up my credit for a while.

Keep in mind, a LOT of people carry huge credit card debts for their whole lives. This is a bad thing. Ideally, you want to use a credit card for emergency, and carry little to no balance. However, you'll have to use it+pay it off to get good marks on your credit report.

Good job Slappy. People almost need CC's these day's.
Renting a car, making reservations at a hotel, at the very least they are quite convenient.
I think the average person has a balance of 5,000, that's not good though. It so easy to let it get out of hand, so be careful.

Yeah, I'm impressed too Slappy.
Sometimes, when I read your postings I just want to
reach through the monitor and shake you. Then other
times you excel.

Please make up your mind, so I don't have to change
putting you in different categories

Three things I knows about: bitches, duckets, and...uh, I forget the third, but there's got to be something.

Good grief Calamity. Your new avatar!

It's still pretty early. Slappy will become slappier as the day goes on. His point, though, is well stated: credit cards are great if (a) you don't allow the possession of one to change your spending habits (i.e. buying stuff you wouldn't buy if you had to pay cash) and (b) you always, ALWAYS, pay the bill in full as soon as it's received.
The credit card industry has become very competitive. I got, today, five solicitations. The typical one is offering something like a 1% rebate. That doesn't sound like much but, if you spend $500 a month on things like groceries, that's $60 in a year! They are hoping that you don't pay and they can hit you up for late fees and interest. But if you are disciplined enough, that is free money.
We have a new gas credit card giving a 10% rebate on gas purchases. I've got several trucks and we use a bit of gas and their pump price is within a penny or two of being cheapest. 10% off of that is about 18 cents a gallon.
The key is, as Slappy mentioned, discipline.

The CC companies are INSANE when it comes to wanting your business. I have blank checks sent to me constantly, "Just go cash and use the money for anything you like."

Tempting little stinkers.

Here's the whole enchilada:

http://money.howstuffworks.com/credit-card.htm

I have used credit cards, for many years. I have never paid a penny in interest. Why? I don't buy anything that I cannot afford to pay off at the end of the month.

Many young people get themselves into a lot of trouble by using those little plastic thingies injudiciously. Because they are not paying "cash on the barrelhead", it somehow does not seem that the item is costing them anything. Then the bill comes in at the end of the month.

If you use a credit card for convenience, you have the use of the card companies' money, for free, for from 21-30 days, according to the card. That is a great deal. You also get, with the statement, a listing of purchases, which is very convenient for keeping track of your spending. If used wisely, credit cards can be a boon. If not, a person can quickly get himself into hot water, fast!

Lets say one month I spend nothing using my credit card. Do I still pay for that month?

HI, Kyle.esq and welcome to able2know.

I'm a collector and I collect on delinquint credit card pymts. One thing I can say is that creditors look at how you pay your credit card as an indicator of your credit worthiness because it is an unsecured loan and will usually be the last one you pay if you get in a bind. How you pay on your credit cards is figured into your credit rating more significantly than how you pay other loans.

A good credit rating will save you lots of money in interest later when you go to buy a house or a car.


Capital One had offered a credit card with a yearly maintenance fee of 36.00, but they would only take that fee as 3.00 per month. In other words, if you get the credit card bill and send 36.00, they would take 3.00 for the fee, apply 33.00 as a credit to future purchases and then charge you 3.00 for the next month's fee. If you don't pay that fee timely--or my fear, that you do pay it timely, but they just lose it, or don't credit your account quickly enough--you get charged a late fee on top of any interest. Those late fees can be high, like 20.00 to 35.00 dollars.

I see people constantly paying late and their payments all go to late fees and accumulated interest. Nothing to principle. If they are set up for an automatic transfer, say from payroll deduction or from a checking account, and there isn't enough in the account to cover the payment on the due date, there's also an "NSF" fee. So, that's a 20.00 late fee, a 20.00 "NSF" fee, and money for interest. If you go over your limit, there can be as much as a 35.00 over limit fee. so, that's 75.00's worth of "fees" before you pay a dime in interest!

I didn't take the card offered to me.

I just can't afford for 20.00 to go to a late fee. That, to me, is a lot of money.

But, to each his own.

If you get a credit card, and never use it, you will not have anything to pay on it unless it has a securing fee (such as dupre mentioned re a Capital One card) or the card has an annual fee (American Express has or at least used to have this). In either case, you're charged even if the card is never, ever used.

A credit card need not be used, ever. It can just sit in your wallet like a donor ID card. But that's kind of a waste, considering the fact that you need to build credit. So you should use it, but there's no reason why it can't be used for tiny things (hey, I need pens) and then paid off, in full, every month.

Of course, though, if you have debt already on it, you need to pay it every month even if you don't use the card. Hence last year's $5000 stereo still needs to be paid off every month, even if you never use the card in '05.

Why do you need credit? Two reasons:
(1) Emergencies. And I mean real emergencies, such as your place burned down and you need to replace your furniture, as opposed to fake emergencies like you really need a vacation. But credit cards are lousy ways to pay for lots of things, if you cannot pay it all back within the month, because the interest is high. If you can avoid the debt, don't carry it. It's far, far better to wait and be able to pay in full (using a check, or a debit card or good old cash), than to pay with a card and then get whacked with interest.
(2) Buying a large item, such as a house or car. Most people buy cars on timed (monthly or quarterly) payments, and virtually everyone, unless you are a millionaire, pays for their house (or condo) with a mortgage. But you need a positive credit history for this, and the only way that a bank (or something like GMAC) will know that you are a good credit risk is if you have shown, in the past, that you can pay off debt quickly.

$5000 in annual credit card debt is insane, yet that is the average amount held in the US. Let me tell you a bit about what that means. It means that, even if you don't use your card, you've got payments. It means that even if you cut up your card and cancel it, you've still got payments until the balance is gone. It means that that debt is hanging over your head. It won't go to your retirement, to your home, to your kids or even to your whims -- it goes to the finance company. And so many people are in debt for such garbage. It's often the accumulation of small things (look, there's a sale at ___!) as opposed to necessities. Having a credit card does not mean you suddenly have a bunch of free money burning a hole in your pocket. Rather, it means that you can float money around a bit differently, but otherwise buying on credit means you're buying. That is, you're giving your money to someone else.

In Delaware, I knew a gal who, every time she was offered a credit card, believed she was getting free cash. So she'd be offered a new card with, say, a $1000 limit, and she'd run out immediately and buy $1000 worth of merchandise. Then she'd receive some other credit card offer for $5000, and the process would repeat, only this time for $5000. And she was buying useless junk, like a wardrobe at Kmart. She had more matching sweatsuits than anyone I've ever seen. She was also something like $20,000 in debt, and that was pretty close to what her annual salary was.

That, my friend, is an addiction, it is a spending illness similar to alcoholism. I don't know what happened to her, but I'll bet you that she does not own her own home and probably not much of anything else. I suspect that she's still paying it all off -- and I knew her 20 (yes, 20!) years ago.

Also, if I were you, I'd tell your parents/guardians you're getting a credit card if you do.

When I put myself in debt in college, I got nervous to ask my parents for help. I told my dad a few years later, after I paid it off, and he told me I was crazy for not telling him...he would have paid it off, and my credit would have been spotless.

Credit companies are insane. If you get a card and don't use it, you get no credit history. They also don't care all that much if you use it and pay off your full balance every month. They make no money that way. They expect you to overextend yourself, and depend on the accumulating interest to a. make their profit, and b. report a good standing credit rating month to month, as long as you can pay your minimums. It's one short step away from racketeering. It is good to have a card for emergencies, but beyond that, don't bother. I have paid off 3 credit cards of 4 in full, and do not plan on getting another.

i have a credit card from a canadian bank and i'm very happy with it. the annual cost is $12 and for that i get free collision insurance for rental cars(so when i have to leave my car at the repair shop and they offer me a loaner, i always make sure the contract shows my credit card number. haven't had to make use of the insurance, but for $12 a year i think it's a bargain). i also have my monthly balance withdrawn automatically from my bank account. no cheque writing; no envelopes/stamps/mailing; no late payment charges - it's the bank's responsibility to make sure they get their money. and i get airmiles; while that amounts to only about $100 or so a year, it's enough to pay for a weekly shopping trip. i've no complaints about this arrangements. hbg

Since we own our own home, my husband and I no longer need to build credit. Hence now we just use a debit card and it's good nearly everywhere. I think the only thing I could not use it for was a rental car a couple of years ago, and I ended up writing a check.

I won't bore you with percentages, but credit card companies are in the business of (surprise, surprise) making money. Let's say you get a card that charges 5% interest, and you charge $100 on it. Well, it doesn't mean $105 when all's said and done -- it means more. Why more? Because you can get socked with late fees, plus the interest compounds very quickly (it can legally compound every month, I believe).

Here's a site with a calculator: http://www.bankrate.com/brm/calc/MinPayment.asp?nav=cc&page=calc_home

Try punching in some number combinations. Here's one:
$5000 in debt, 18% interest, 2.5% for how the minimum payment is calculated, and then $100 for each of the last 2 figures. -- You end up paying off the debt in 313 months, and you pay over $7000 in interest! That's over 26 years (yep, years) to pay off the debt, and the interest is more than the cost of the original item. Can you afford these kinds of financial shenanigans? What happens if you lose your job during that time period, or have a kid, or someone in your family suffers a catastrophic illness? It's a heavy duty reminder to live within your means.

cav and Slappy, congrats to you on paying off debt, I'm sure it's a big weight off your shoulders as it goes away. hamburger, that's a great deal you have.

i know that the banks are bigger and blood-thirstier than i am, but i feel like the mosquito that comes when it's dark to suck my blood - and i can never catch the darn' thing. i do the same with the banks, try to suck some of their blood when they are asleep. we've also found out that, when we have some money in our account, we have a powerful weapon to entice the bank (feel sorry for the poor bank employee; she's really just trying to make a living) to offer better interest by murmering that we may move our account across the street to the competion; so far has worked really well - but makes the bankclerk break out in sweat, really sorry about that. hbg

Correct me if I am wrong. You pay interest in addition to the money owed?

Yes, you pay interest on the balance you carry month to month. But if you pay the balance in full every month, you're not paying interest.