When I was growing up, I was warned against getting a credit card. I heard nothing but horror stories –my parents plunged into debt, their credit scores irrevocably tarnished and making it all but impossible for them to buy a home ever again. It made me hesitant to even apply for one, let alone use one, in my adult life.
However, as I did more research on the topic, I realized that I was misled. Not purposefully, of course, but getting one is actually a critical part of taking the next steps into our financial journeys. You see, it is quite difficult to build up a credit score without having a card to use.
If you are still feeling uncertain, I do not blame you. I am sure I was not the only one who was told about how scary they are, or how risky it is to have one. So, if you do want to learn why they matter and if you should consider one, continue reading this article. I will do my best to answer those questions!
What is a Credit Card, anyway?
This question may not seem like it is important to answer, but I do think that we should tackle it first. You can read about what they are on this page, if you are completely unfamiliar with the concept. That being said, I will do my best to explain as well.
They are a form of plastic or metal card. More often than not they are issued by a bank or other form of financial institution. Then, with that card, you are able to pay for goods and services from any vendors that accept it. All in all, they are quite convenient to have.
One thing that you should keep in mind about this though is that any money you spend, you are expected to pay back. Most cards have a certain limit to them, such as five hundred dollars (as just an example) that you cannot go over. So, you have that set limit, and once you pay back on it, you are able to spend that again.
As a small side note, there are also something known as Lines of Credit, often called LOC, that are separate but usually issued by the same company. It is a similar concept, except instead of the line of credit on the card, you are able to withdraw cash advances. However, obviously it must still be paid off.
The Different Types
This will likely not come as a shock, but there are a variety of types of them that might determine which you want. I think it is good to have at least a basic understanding of each of them, so that we can be better informed consumers when it comes to our finances. It is easy to simply go with the first one that we are approved for, but this might be a mistake.
Cash Back Cards
The first kind that I will cover are cash back. Generally, they allow you to earn money back on the purchases you make. Now, do try to bear in mind that the percentage is usually not high. However, that does not mean they are not worth it!
If you are planning on spending a large amount of money with it, for example, you might be able to benefit from it. You can see some examples of how this works here, https://kredittkortinfo.no, if you are curious. Not all of them are the same, so it is a good idea to look at a variety of offers to figure out what might work for you.
This variety might seem similar to the one above, and to some extent it is, but it operates a bit differently. Usually, you get certain rewards for using the card, but it is geared at purchasing specific items or services. A popular one is a flying rewards card, for example.
People who travel frequently can get “miles” as a reward for their flights. There are other types too –some department stores offer them for frequent shoppers. So, they can be quite handy, but due to their specificity, they might not always be something you want. Consider what you would be buying to get the perks, and only go for it if you already frequently make those purchases.
If you are the owner of a small business or handle the expenses for one, this might be a kind that is very useful for you. Their main purpose is to allow you to keep your personal spending life separate from your business one. The only thing isthat you may not be able to build up your own credit score.
However, that is usually not enough of a downside to really deter people from doing that. Rather, it is generally still a safe plan for keeping your finances separate, as combining them can be more harmful in the end. Some creditors and companies offer specific cards that are geared for this purpose, so be on the lookout for those!
Many people who are new to borrowing money or do not have much credit history (thus meaning that their FICO score is low) end up going for a secured credit line. This means that you put down an initial deposit, usually an amount close to one hundred or two hundred dollars, and that serves as your line of credit. Since you pay upfront, there is no risk of you not paying that money back.
The up-front cost can be a bit of a financial strain, though, so just remember that. Still, it is a good way to build up your score without too much risk, as if you don’t want to put more money into it once you use that, you can always wait for a while before doing so.
Which is Best?
Hopefully, it will not be too annoying to hear that there really is no answer to this question. As I alluded to a few times in the article already, for the most part, the selection process is really going to be up to you and your discretion. It will also, to some extent, rely upon what card you get approved for.
There is an application process, though thankfully it is usually not too complicated in today’s day and age. Most credit card companies even have a website where you can virtually apply, saving you a lot of time and effort. Just prepare your identifying documents beforehand if you can!
As you can probably imagine, your credit score will have a big impact on what you will get approved for. If that is something you are worried about, you might want to go with a secured line to get started. However, there are still plenty of options.
My advice is to do as much research on the potential choices as you can. Do not be afraid to ask questions about the different cards, such as what monthly payments might be. It is a big commitment, after all, if you will end up with something like fifty-dollar payments each month.
You can even get a joint account with a co-signer of some sort if you do not have the best credit score yourself. Of course, they would need to have a lot of trust in you, so usually it is with a parent or other family member. Do not despair if you do not qualify for your own card at first –it is a bit of a process.
Once you get your first one, just remember not to over-spend. Be cautious and do not buy beyond your means. Something I find useful is to simply dedicate it to emergencies, or something along those lines!