Credit Card Information

Credit cards can be an important part of your finances.

When used correctly, credit cards can make purchases easy, paying bills online simple, and provide you a way to build up your credit.

When used incorrectly, credit cards can get you into debt quickly and the high interest rates can make it difficult for you to get out of debt.

There are a few basic rules when using credit cards. Keep the number of credit cards you own to a minimum, don't spend more than you can afford, try to pay off your full credit card balance every month.

There are four different types of credit cards.

In order for you to choose the credit card that is right for you.... think about how you will use it.

The four types of credit cards are:

1. Zero or low interest rate credit card - These credit cards are best for people that are willing and able to pay down their existing credit quickly. Most of these credit cards offer the low interest rate on balances that you transfer from other credit cards. The lower rate can save you a lot of money on your current interest costs.

One of the main drawbacks of these type of credit cards is that the low rate only lasts for 6 to 9 nine months and then converts to a higher interest rate usually above 15%. If you make just one late payment, the interest rate can revert to the higher rate immediately. If you end up transferring a large balance from another card and don't pay it off during the lower rate period, it could end up costing you more with a higher rate later on.

2. Rewards Credit Cards - These credit cards work best for people that make a lot of purchases on their credit cards and pay them off on a monthly basis. The rewards credit cards offer airline miles, cash back or points toward the purchase of select merchandise depending on the amount that you spend.A few of the rewards credit cards offer as much as 5% cash back on select purchases and no annual fee.

You need to be aware that some of these rewards credit cards have high interest rates and annual fees that can cancel out the benefits of the rewards. There are also some rewards cards that have unfavorable and complicated policies for redeeming the rewards. Some of the airline mileage credit cards are limited to specific airlines or have specific criteria regarding the use of the airline miles. You need to be sure to read the fine print carefully so you fully understand the terms of the rewards credit cards.

3. Secured Credit Cards - These credit cards are for people that have gotten into problems with the use of credit cards in the past. They are about the only way that you can get a credit card if you have bad credit. The secured credit cards report to the three credit bureaus so that when you use the credit cards properly you can repair your poor credit rating and establish a good credit report.

The way secured credit cards work is that you put give a deposit to the credit card company, usually between $200 and $1000. The credit card company then allows you to charge up to a certain percentage of your down payment. You will never be able to charge more than your deposit. Essentially, your secured credit card works more like a debit card.

4. Student Credit Card - The student credit cards were created for college students that can handle their money and credit responsibly. Students can qualify for these credit cards without an established credit rating. Many student credit cards also offer extras like discounts on books or cash back.

Because of the unknown credit risks with many students, some credit card companies charge higher interest rates for students. Unfortunately, it is easy for students that are not used to handling finances and credit cards to take on additional debt that becomes difficulty to manage.

Credit Card Summary

As with any financial decision and transaction you get involved with, be sure to take the time to know what you are getting yourself into.

People typically don't take the time to read the fine print on credit card application form. Make sure you understand the terms and conditions of the credit card. Know what the credit card interest rate will be, whether there is any grace period, and the amount for late fees.