How do Credit Cards Work?

Are you considering getting a credit card?

Credit cards are one of those things that are common to have, but a lot of people also don’t know how they work, especially when first getting one. Sometimes we watch movies where we see people using and paying crazy amounts of money on a car, a purse, or overall, just a huge shopping spree and we are led to believe that with having a credit card we can spend however much we want… well that is far from the truth. Usually in these movies the teenage characters are using their parents credit card and at the end they end up “maxing out their cards”. You may be asking what does a movie have to do this? Well, movies are sometimes convincing and lead people to do the same things in the real world, especially if the people watching are young. This is one of the many examples that can be used for this specific topic. With all, it is easy to be influenced by movies, but before we act on anything important, it is always good to do your own research.

How do Credit Cards work?

A credit card is much like a debit card, but instead if spending your own money, you are spending money that is borrowed from the bank. You can think of a credit card as a loan that you use for personal things such bills and groceries. When you pay those items off with a credit card, your job is to pay the bank back with the money that you ended up using, along with any interest and other fees you agreed to upon opening the credit card. You must also know that these fees and interest rates go hand in hand with your credit score. The higher your credit score, the lower interest rates you will have on your card and the more money the bank will lend you; vice versa. Cick HERE to pull your credit report and see where your credit stands.

Why should you use a credit card?

Credit cards hold a lot of value other than just being a financial source. They can become very beneficial and hold many advantages that you may or may not have known about. Here are two reasons on why you should be using a credit card:

Build your Credit Score

If you can make your monthly payments on time without having any setbacks, it proves to the bank that you are able to manage your finances. These payments will be reported to the credit bureaus and will be reflected on your credit score in a positive way

Make payments that you may not be able to afford in the moment

Say you have an upcoming bill that is a little pricier than usually or you just haven’t gotten paid, but you need to make a payment or else you won’t be able to pay it and it will be late, therefore it would lower your credit score. This is the perfect opportunity to use your credit card (considering that you have been using it wisely). If you can pay back your credit card what you used at the end of the month you are good to go. Don’t make this a habit though and try to pay everything off with a credit card because you will be left with a large balance that you may or may not be able to pay off that month.

Overall, the use of credit cards is great if you know how to use them and when to use them. If you feel like its time to open one up and have any questions, feel free to get in touch with a trusted credit specialist HERE!