Pros and Cons of Credit Cards

Credit cards can be scary, and they should be. They have high annual percentage rates (APR) that are design to destroy your finances, so if you’re going to dance with the devil, let’s go over everything that you need to know. I will be covering topics that range from how to improve your credit scores, to different types of credit cards, and best practices.

First let’s discuss how credit scores are determined. There are two major things that you need to do to improve your credit score, and that is pay your bills on time and be aware of how much you owe. This is calculated by how much you could have taken out, and how much you have. Your length of credit history, which is all of your cards and debts that have accumulated that are still open and divided for average time. Then another factor is how many different types of credit you have from student loans to mortgages on credit cards.

Now that we’ve covered briefly how credit scores are calculated. Lets cover exactly what credit cards can do for you, and how they can hurt you. There are basic cards that have no perks, bonuses, or heavy fees. There are regular reward cards, which are pretty much industry standard to make sure that they attract more customers annually. And there are student credit cards, but they are directed more at students with lower balances and lower APRs. Now we’re getting into some very different types of cards. We have secured cards, which you can get at your bank or institution. The money is used for collateral for the entire debt of the card, in case you default on it. These are like credit cards on training wheels, and they are usually for building credit. Then there are charge cards, which are like glorified gift cards. You put money on it and you spend it like a gift card.

After charge cards there are limited cards, which are designed to limit where they can be used, how they can be used, and in what institutions they can be used. Now onto the bad or credit repair cards. Subprime credit cards, which are designed to be manipulative and target those that have poor credit scores. And last but not least there are debt consolidation cards, which allows you to transfer your debt from another card onto this one. They usually have a zero APR, but if you miss a payment you will be hit with a hefty fee. So the most obvious bonus to having a credit card is easy access to a short term loan.

Companies are good at analyzing numbers, and they know how to lure customers in using perks and rewards. They are targeting 38% of the population that has around $4,000 in credit card debt that is rolled over every single month that they pay a high APR fee for. The best practices when your swiping a card is to have money already set aside in an account to pay off that credit card in a timely manner, and always read through the contract, and understand what it means.