Introduction to Credit Cards

You probably already know what a credit card is. You see the ads every day - in the television, on the radio, in the newspapers or on billboard advertisements. Your friends, parents and relatives use them all the time. But just to clear up any misinformation, let’s look at what credit cards are, why you should have one and what risks are involved with using one. Simply stated, a credit card is a financial arrangement between you – the card holder – and a financial institution such as a bank or credit union. The arrangement specifies that you can borrow money from the lender as long as you promise to pay them back in the future. The lender sets the terms for the deal, including how often payments are due, what the minimum payment will be and what interest rates will apply. Your payment will include not just the amount of money you borrowed, but also an additional charge based on that rate of interest. Credit cards can be used as a tool, offering many benefits for consumers. Some of these benefits include: Convenience: With a credit card, you can buy anything you want right away, whether or not you have the cash available at the time. If you’re purchasing a big ticket item like a computer or a washing machine, you don’t have to wait for months until you save up the money. Emergency Protection: If you’re ever in an emergency, you’ll see how helpful a credit card can be. Whether you’re stuck with medical bills or auto repair fees, using a credit card can help you get back on your feet again. Security: Large amounts of cash can be lost or stolen. But if your credit card goes missing, you can have the account cancelled and a new card issued without losing any of your money. Building Your Credit: If you dream of buying a house or really nice car, you need to have a credit history that demonstrates you can take on debt and pay it back on schedule. You can use a credit card to make small purchases and build up your credit score by paying your statement on time. When used responsibly, credit cards can help improve our daily lives. But the temptation to live beyond your means and max out your credit limit can be a problem. That’s why it’s important to think of your credit cards as tools that you can use, not free tickets for anything you want. Here are some simple tips to help you cope with your credit card debt: Make a Budget: One of the first steps to financial freedom is a realistic budget. If you don’t already have one, check out the article “Creating a Budget” on Smart Young Money and set one up for yourself. Sticking to a budget will help keep you from splurging with your credit card. Set a Limit: Many analysts recommend keeping your credit card balance around 30% of your credit limit for maximum benefit in the formula used to calculate your credit score. Promise yourself not to exceed that limit and you won’t have with out-of-control credit card debt. Go Back to Cash: If you’re having trouble keeping your credit card in your pocket, switch back to cash for awhile. When you use a credit card, you don’t get the same feeling of having forked over your hard-earned cash, so you’re prone to spending more. Using cash for a bit will help you remember that little purchases add up. Get Credit Counseling: If your debt gets out of control, talk to someone! Ignoring your credit problems won’t make them go away – it will only make them worse. Talk to your parents or a trusted friend who may be able to help, or consider getting help from a group or institutions that can help you with your problems. Credit cards can be helpful tools, but the potential for abuse always exists. Taking the time to learn how to use credit cards properly can help you prepare for a bright financial future.

Top 10 Practices Of A Responsible Credit Card Holder

Credit is good, but only when it is absolutely necessary. An irresponsibly used credit card is a sure shot way of getting yourself into a debt trap that is nearly impossible to get yourself out of with out the help of a debt professional. So, for those who feel that they have been adorned with the privilege of being trusted with a credit card, this could be a wake up call to stay out of debt. Use Your Credit Card for Emergencies Make it a rule to use your credit card only for emergencies. You never know when you will need the credit facility your card offers you. Though the card facilitates you to buy something you would not normally be able to buy with cash, you should try to pay some amount of the bill through cash and the rest through your credit card. This will make it easier for you to repay the bill when it comes. Don’t Use Your Entire Credit Limit Your credit card may offer you a limit that is ten times your monthly salary. www.onlinecreditcardsinfo.com This is a temptation of getting into a debt trap where you will be repaying the interest most of the time. Try to use only 10 percent of the credit limit of the card. Do not over spend unless you are sure you can spare the cash from your next salary cheque. Don’t rush to use your full credit limit. Repay Maximum of the Debt You Have Incurred Make it a practice to repay the maximum of the debt billed to you. Many people try to stick around the minimum amount they have to pay, which is typically 10 percent of the bill amount. At this rate you will take about six years to repay the debt if you keep on using the card. Try to keep your credit card expense limited to 10 – 20 percent of the credit limit and repay as much as you can every month. Keep Your Card At Home If you find you are over spending try leaving your credit card at home when you go out. Take it with you when you feel you actually need to use it in an emergency. Do Not Give Out Your Security Information to Anyone Your security information is kept secret for a reason. Do not give this information to anyone. Not even to your best friend or credit card representative. This information includes date of birth, PIN and security questions. Verify a Merchant Bill Verify that the merchant outlet you have swiped your card at has only swiped the card once. Else you will be billed twice for the same transaction and will be a hassle to undo. Never Give Out Your CVV Code to Anyone Without your CVV code (the 3 digit number behind your card) you cannot make any online transactions. Your card number combined with this CVV number can be misused by any one who knows both. So when using your card at any outlet, ensure the attendant is not recording the CVV behind your card. Never Leave Your Card Unattended Many credit cards are stolen from vehicles. SO never leave your card anywhere out of sight including at your work place. Check If the Card Returned To You Is Yours Sometimes by mistake and at times deliberately, attendants return redundant cards to customers and retain the actual card for misuse. Check that the card returned to you is yours – every time. Report Lost Cards Immediately Do not wait to report lost or stolen credit cards. The damage might be much more than the nominal fee for blocking your card. If you are careful with your card the above mentioned ten responsible actions regarding your credit card can save you many headaches – and a lot of money.

The History of Credit Cards

Credit Cards Replacing Paper Money A credit card is a small piece of rectangular plastic that is no thicker than a sheet of paper, though it cannot be folded. Initially credit cards were metal tokens in the shape of coins, then they changed to metal plates to celluloid then fiber and now plastic with perhaps a photo of the holder and a magnetic strip on the reverse containing security information such as a personal identification number enabling the card to be used at money dispensing machines (ATM’s) and merchant establishments. What is meant by ‘Credit’? Credit is the system of buying some produce or service without having to pay for it at the time of the transaction. The payment is made at a pre-determined later date with the addition of a fee to the bill amount. This is like loaning someone money to buy something without actually giving them the cash but instead giving them the product they want to buy. So, the system of credit is not new to humanity in fact, it is as old as civilization itself or perhaps even older. The entrepreneurs of the inhuman kind have been proclaimed responsible for identifying human needs and wants as a rollicking business, and so they invented the credit card system. Though, disputed by many, The Diners Club is credited to be the ones to invent the credit card in 1950. When Were Credit Cards Invented? In contradiction to the theory that ‘The Diners Club’ started the credit card system, the Encyclopedia Britannica records the origin of credit cards www.onlinecreditcardsinfo.com in the United States as far back as the 1920’s. During this time firms such as oil companies and hotel chains started issuing credit cards to their regular and valued customers who were free to use their services and pay them at a later date. These cards were only useful for purchasing goods and services from the companies and establishments that issued the card. However, references to credit cards have been found as early as 1890 in Europe. It was only in the late 1930’s that companies started accepting each other’s credit cards and this is when things began to get complicated for accountants. Computers Promoted The Use Of Credit Cards In the beginning there were no computers to record the credit card transactions and the process of verifying the credit balance of the card was done manually through a regularly updated credit card directory, much like a telephone directory. This system was time consuming and tedious and provided many loop holes for credit card fraud. Today, with computerization, the use of a credit card is instantaneous. All one needs to do is to ‘swipe’ the card through a slot machine and the amount entered. If there is adequate balance in the account of the holder the transaction is completed and the customer billed a month later. Usually credit cards allow for a 50 day credit free period. If the outstanding bill is paid during this time the customer does not have to pay any interest on the transactions, else there is a whopping 2.9% charge per month on the bill amount. Who Issues Credit Cards? Banks and financial institutions are the main issuers and promoters of credit cards. The invention of the first bank-issued credit card is credited to John Biggins of the Flatbush National Bank of Brooklyn in New York. This was the year 1946 and Biggins did not know at the time that he had hit upon an idea that would take the world of credit by storm in times to come. From this first credit card called “Charge-It” many cards have flooded the market such as the all famous “American Express” credit card and the Diners credit card. The Bank of America issued the BankAmericard in 1958. This card is now known as the “VISA” card. Around the same time the popular MasterCard came into being. These are the two prevailing cards being used today. The era of plastic money had begun.