What Is a Credit Card?
JOSEPH AUDETTE
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What is a Credit Card
A credit card allows you to borrow money from your bank to make your purchases, whether you’re buying a burger or a round-trip ticket to France. As long as you pay back the money you borrowed within the “grace period” of 25-30 days, you don’t have to pay extra. If you don’t pay it back in that time period, you’ll have to pay interest — a percentage of the money you owe the bank — on top of what you borrowed.
Credit card pros and cons
Pros Cons
You can make a large purchase now and pay it off in smaller chunks
Your credit card statement makes budgeting easier
It’s easier than carrying around a wad of cash
You can build up your credit score, which will be useful later on
You can easily dig yourself into debt if you’re not careful about your spending
The ease of using credit cards can cause you to overspend
Interest rates can make even a small debt seem larger over time
Choosing a credit card
When you’re deciding which credit card to get, ask yourself one question: Will I be paying interest on my debts?
If you pay your credit card balance in full and on time each month, then you won’t be charged interest. In that case, it’s worth it to get a credit card with rewards. These cards give you points, cash or airline miles every time you use them. However, rewards cards have higher interest rates — high enough to wipe out the value of the rewards you earn. That brings us to what to do if you do carry a balance (in other words, you don’t pay off your debt every month). You’ll want to minimize your interest payments, so you should pick a credit card that has a low interest rate.
Your credit card is issued by a bank, like Bank of America or Chase. The bank determines your interest rate, fees and rewards, so it’s important to find a bank that offers a card you like. It’s processed on a network, like Visa or MasterCard. The network doesn’t really affect the card, except for giving you random perks like travel accident insurance. Generally, the network isn’t as important as the bank.
In general, the better your credit score, the better the cards you can qualify for. The most generous rewards rates, the best perks and the lowest interest rates are available to those with excellent credit.
