The Credit Card - A Most Valuable Tool For Building Credit

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The Credit Card - A Most Valuable Tool for
Building Credit
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• A credit card is a small plastic card issued to
  the consumer by a financial institution such as a
  bank or credit union. The card issuer creates a
  revolving account with a line of credit to the
  consumer. The cardholders can purchase goods and
  services or receive a cash advance, until they
  have reached their predetermined credit limit.
  The merchant who accepts credit card payments
  receives the money from the bank issuing the
  card. The cardholder eventually repays the bank
  through regular monthly payments. If the entire
  balance is not paid in full, the issuer usually
  charges interest on the unpaid portion.

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• Credit cards can be an extremely valuable tool if
  used correctly. However, there are also risks for
  those who lack self-discipline for the debt they
  cannot repay. Although when used responsibly and
  with the correct intentions, the card can provide
  significant benefits. Here are some of the
  attributes of owning a credit card
• Convenience
• The credit card is a flexible payment tool
  accepted at over 30 million locations worldwide
  as it has become a good alternative for cash. On
  many occasions, situations arise where you need
  more funds than what are immediately available.
  Emergencies such as home or car repairs, medical
  expenses, travel for a family crisis, are
  attainable instantly with a card. Such credit
  spending should be done with a short-term
  intention with timely payments to avoid
  accumulating debt.

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Establish and Boost Credit History

• Paying your bills in full and on time indicates
  responsibility which helps to boost credit
  rating. A good credit rating also helps in many
  other situations, such as, obtaining a loan with
  a low-interest rate. More than likely, your card
  company will also approve a higher credit limit.

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Borrowing Interest Free

• Credit cards allow you to use the bank's money
  interest free within a grace period. Therefore,
  payment for purchases on the card is due at the
  end of the pre-determined period. Paying your
  balance in full each month enables you to receive
  an interest-free loan month after month.
• In order to entice new customers, card issuers
  frequently create 0 interest rate promotional
  offers for credit card purchases and cash
  advances. The only limitation is for the credit
  loan to be fully paid back at the end of set time
  period. If used wisely, one can use the credit
  card 0 interest loan to pay off higher interest
  rate debt. As long as you have the
  self-discipline in controlling spending, this
  type of financing can be a valuable tool for
  money management and budgeting.

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Tracking Spending

• As the credit card issuers provide detailed
  monthly statements on purchases, they allow you
  to keep track of your spending with ease. For
  business owners, the summaries are a valuable
  tool for tax return preparation, as they provide
  information for allowable tax deductions.
• Rewards and Benefits Many companies offer rewards
  and cardholder benefits to their customers.
  Loyalty programs have been designed to encourage
  cardholders to use one specific card. As the card
  is used, the cardholder accumulates airline
  miles, hotel chain points, cash back points etc.
  that a cardholder can redeem for products or
  services. For those who use their cards
  frequently, the rewards can be quite substantial.
• In addition to loyalty program rewards,
  cardholders also reap benefits that include
  complimentary car rental insurance, travel
  insurance or overseas health insurance.

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Consumer Protection

• For mail-order purchases that are not received,
  or turned out to be defective, the charge can be
  disputed with the credit card company. The burden
  of proof lies with the sender therefore, the
  consumer has limited financial liability. Such
  consumer protection provided by the credit card
  company is not available with most debit cards or
  when paying cash.

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Protection from Fraud

• Carrying cash can be unsafe, as it can be stolen
  or lost. The lost cash is rarely replaceable.
  Instead, a misplaced or stolen credit card can
  simply be inactivated by the card issuer and a
  new one reissued. As for any fraudulent charges,
  they can be challenged. Upon investigation, the
  charges are usually forgiven or refunded.

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Responsibilities of the Credit Card Holder

1. A Cardholder can maximize their benefits by
2. Paying on Time - On time payment is the best way
   to avoid late fees and penalty interest, and at
   the same time, boost credit score. The simplest
   way to ensure on time payments is to set up an
   automatic bill pay system.
3. Paying more than the Minimum Due - If balance can
   not be paid in full, it is vital to pay as much
   as possible over the minimum.
4. Not Using Your Credit Cards' Upper Spending Limit
   - Having the maximum amount charged can lead to
   recurring fees and interest expenses. Maxing out
   the credit card also leads to a The rule of thumb
   is to keep the card balance below 30 of the
   limit. By spreading purchases between several
   credit cards, you can manage the 30 limit with
   minimum difficulty.
5. Avoiding Unnecessary Fees - Many credit cards
   charge various fees late payments, over-limit,
   cash advances, transferring balance or returning
   check. Read through your credit card agreement to
   be fully aware of all the fees. Avoid these
   transactions as much as possible.

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Change of Terms and Conditions

• Credit card companies frequently change the terms
  and conditions. Such changes often include fee
  structure, interest rates, billing, and other
  features. More often than not and to your
  detriment, these modifications benefit the card
  issuer. Be aware of these changes as it can help
  you utilize the card more efficiently. For
  example, a cash advance fee increase could prompt
  you to use a different card for cash advances.

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• As described, owning a credit card can be very
  advantageous. However, if not handled properly,
  it can become a liability, such as
• For non-timely payments, a credit card loan
  carries a higher interest cost than other forms
  of credit
• It can create poor credit scores due to late
  payments
• It allows you to have a false sense of security
  thus accumulating more debt than manageable
• It complicates your living with complex terms and
  conditions
• It is critical to always use your credit
  responsibly. Credit problems such as extending
  credit limits to the maximum can result in a poor
  credit scores.

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