I do not understand how a credit card works and I am considering getting one?

Answer 1

Basically, a credit card allows you to buy items now and pay for them later. You'll get a monthly statement listing the purchases you made. If you pay off the entire balance by the due date, you won't have to pay any additional money. If you can only pay part of the bill, you pay additional money, in the form of interest. The interest rate you receive is determined by the credit card company when you first open the credit card. The interest rate will be based on your credit history. Interest charges can quickly add up - so be careful.

Answer 2

I will try to break them down for you

Principle
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Essentially credit cards are tools to defer cash payment of goods and services to another time period.

It's like taking out a loan for things you buy everyday. But instead of calling your bank and asking for a $25 loan for groceries that you want to pay for next month, you go to the bank beforehand and ask for a credit card.

The consumer (you) will apply for a line of credit (credit card) from a bank (credit card company) If approved, the bank will say that you can charge up to a certain amount (credit limit) and a certain interest rate if you choose to carry a balance.

Then they give you a card, typically a VISA, MasterCard, American Express or Discover. You then use these cards almost anywhere nowadays for transactions on everyday purchases or wherever you want to use a credit card.

Every month they will send you a statement detailing your purchases, any finance charges, current amount owed and a minimum payment which comprises typically 2% of your balance plus the monthly interest.

Most companies will let you pay off the entire balance every month without charging interest (grace period). However, if you pay the minimum payment or don't pay the entire balance off, you are subject to finance charges.

What to look for in getting one
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Since you are new, I would be concerned with getting swept up in applying for the first card you see. Also, depending on your history, banks may be reluctant to issue you credit at first.

Places I would try would be your bank first since they have a banking history with you. Also, if you are a student many of the bigger companies (Citibank, Bank of America) will have student cards which are easier to get.

If not, gas cards from a major oil company are fairly easy to get and a great way to build credit. Plus, you aren't as likely to get out of control with purchasing too much gas right?? :)

Word of Caution
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Credit can be a very convenient, powerful tool when used wisely. It can also be a nightmare if abused or used poorly. If you don't go over 30% of your balance, pay all of your balance or more than the minimum payment you should be fine.

There are some that preach the "Cash Only" lifestyle predicting doom and debt to every potential credit card holder out there. Yes, cash is interest free but credit cards allow for online purchases, hotels and so much more. Also, most credit card companies will not hold you liable for unauthorized purchases. If you lose your cash, it's gone.

Anyways, I hope that helps.

Answer 3

I have had credit cards (explained in another answer) and debit cards, where the amount you pay using the card is immediately deducted from your account, and although you can't borrow money on it I preferred the debit card in the end because you always know how much money you have and can't go into debt. If you do need to borrow, there are cheaper ways of doing it than with a credit card.

Answer 4

If you dont know how they work then dont get one.

People first, then money, then things.

Watch Suze Orman and she will guide you through the process.

A credit card should only be looked at as a vehicle to better credit. If everyone looked at it like this then the companies would go bankrupt but everyone would have perfect credit.

Answer 5

they are very handy, but it is easy to get into debt with them...what happens is that you use it instead of cash anywhere you go you can use it almost, and at the end of the month you get a statement saying how much you have to owe, and the more you pay off at a time, the less interest you have to pay...the average american has over $11,000 in credit card debt though, so be careful

Answer 6

I am 58 and never had a credit card, my advice don't get one.

My motto is "If you haven't got the cash don't buy it."

spend a penny save a penny when you have saved enough then you can buy it.

I have a debit card, with a debit card if you do not have sufficient funds in your account you cannot purchase the item that you want.

Answer 7

1. Know how much u can take out from your monthly income to pay ur Credit Card expenses(that is ur monthly limit) to do that u have to estimate ur monthly spending and on what -write down eg. 300 on food, 75 smoking, etc.. 2- Split ur spending to: spent by CC and spent in cash .If u used to spend $ 300 on food in cash, and u already bought food on Credit for $200 u can afford to spend only $100 on food for the rest of the month ( ur income is the same)Good luck and learn from ur mistakes .

Answer 8

It's easy, just imagine being able to take out small loans whenever you want but never being able to pay the whole thing off. Oh and then there is the telemarketing to go with it, and the junk mail. Have fun with your plastic money!

Answer 9

Don't get one. You don't need one at all. Pay with cash. If you don't like carrying cash or writing checks, get a debit card.

Answer 10

If you wanna increase your debt, then go for credit card.....or else stay away from it