Good and Bad Tips on Credit Card Decisions

Credit cards can be a great thing for someone starting out, however they can also become a nightmare as well. Companies that offer credit cards prey on the hopes that you spend more money than you are able to pay off every month. Interest rates are a danger zone also for the consumer, because companies do not announce the fact that if you are late or do not pay ,they can raise your interest rate to the highest rate available. There are five good reasons for owning a credit card as well as five bad reasons.

Good Reasons for Credit Card Use

1) One good reason to own a credit card is the importance of gaining a good credit history. Someone who is starting out does not have any credit, which creditors look at as bad credit. People cannot do much without a credit history, many people will not even look at you if you don’t have credit. There are many credit cards that offer consumers a card with a certain limit on it and within a certain amount of time will offer an increase of your limit to you. They need the consumer to prove their responsibility first. The only downfall with that, is that there are hidden fees many times that are listed in the fine print, such as yearly amounts to keep the credit card open. Different programs will have different fee amounts also.

2.) Some credit cards offer special program advantages such as airline mileage, medical insurance, free car rental insurance, travel discounts and many more. There are good advantages to that as well as bad, however many card companies can allow you to cancel these programs at any time, with no penalties.

3.) While paying with cash can allow you the confidence to know that the product is paid for, paying with a credit card is a good way to be able to have written proof of purchase, in case something happens such as theft, damage, or simply returning it without a receipt. Credit card statements can allow you to prove how much you paid and when, as well as the date and usually if you can produce the card at the register, they will refund you the money back onto the credit card.

4.) When someone is addicted to shopping, a credit card can be a bad thing, however if cautious, you can use your credit card statement to actually keep track of how much you are actually spending monthly. Tracking your spending can actually assist you in keeping to a budget as well, and also if you are a business, you can use the statements to keep track in order to know amounts for a tax write-off.

5.) Another good reason to carry one credit card is basically to use for an emergency basis only. As hard as that is, it is good to use for situations where you are out and don’t have enough cash, you can use the credit card as a float for money until your next paycheck. If careful and not abusive towards the credit card it shouldn’t be as risky as it sounds.

Bad Reasons for Credit Card Use

1.) One bad reason to use a credit card is that credit card companies reserve the right to raise your interest rates at their discretion. If for any reason you are late with the payment or do not make your payment, they can raise the interest rate not a little but to the highest interest rate available. They usually print this in the rules and regulations and in the fine print so they can say they told you about it if by chance you call and complain. There are also fees for the payment if you are late, whether or not the payment is one day or two weeks late.

2.) Chances are if you own a credit card the credit card company knows you will spend more money than you have and therefore be unable to pay off the credit card on a monthly basis. If you pay the minimum amount every month, the company charges fees that can make it longer to pay back, which in turn gives them more money.

3.) Credit card companies send out mass mailings with pre-approval notices, knowing that consumers will send in the application in attempt to obtain a credit card and their name is entered into the computer. When they are approved, they will receive many different credit card offers in the mail.

4.) People who have credit cards have more temptations to purchase things on an impulse rather than a planned purchase with cash or checks. Impulse spending is a bad thing because more times than not they are things that are not needed or things that are wanted but not thought through. So if you were thinking of using the credit card to pay for a spur of the moment vacation that will cost $1500, consider the fact that on top of the amount you are also going to add the interest rate on top to pay back.

5.) Credit card companies make the decision that the consumer will fail at paying their bill, so they mostly have hidden policies that can earn them more money, so it is usually built in the best interest of the company. Young people who usually are obtaining their first credit card do not think of hidden fees or the fact that if they don’t have the money for their bill, it snowballs and becomes out of control very quickly.

Credit cards are a good thing however if not taken seriously they can become a dangerous thing for our credit rating. A good credit rating is a good thing to hold onto and when it is gone, it is hard to get back. Think carefully when deciding to get a credit card and read the fine print before you agree to anything, because there may be some things that are not so enticing about the card you are applying for.

Resources:
http://www.tiptoptens.com/2011/03/16/10-reasons-why-credit-card-is-a-bad-idea/
http://articles.moneycentral.msn.com/Banking/CreditCardSmarts/GoodReasonsToUseThePlastic.aspx