January 24, 2007, 11:01 am

The Credit Card

by: admin    Category: Types of Financial Products
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There is a little piece of plastic that will follow you everywhere you go and I’m not talking about your driver’s licence. In the 21st century, the credit card has become the men’s best friend or should I say worst enemy? In fact, a credit card can be both. Some use it to gain points for free gifts, others report all their obligations on it a pay huge amount of interest.

Definition

A credit card gives you the access to a predetermined amount of money. This maximum limit can be increased and decreased by both the individual and the grantor. The amount is revolving as the holder of the card makes his payment. A minimum payment is requested every month in order to cover the interest and a very small amount of capital.

The interest rate on a credit card is a major negative point. It can go up to 30% for some retailer’s credit cards. However, you have now the option to pay a fixed amount of money per year in order to have a better rate. The term of this option defers from one institution to another.

Many other features are now offered to get credit cards more attractive to the population. Several cards offer reward programs like points or cash back. You can also purchase all kind of insurance from life insurance to extending warranty on purchased goods.

Needs

While most people use the credit card to spend money they didn’t earn yet, others use it to build a strong credit history. In addition to that, by using some of the options such as cash back rewards and by paying off your balance every month, usage of credit cars could be a very powerful tool to manage your personal finance. In fact, by paying the full amount owed on your cards, you will not pay interest. Therefore, you will benefit from many advantages without paying astronomical interest rate! This technique requires self control and a lack of maturity could end up in a complete financial disaster. Credit cards should be used for short term need and to get reward from several features.

Qualification

The credit card is the easiest product to qualify for. Credit cars companies are mostly interested in one thing; your credit bureau. With this report, they will be able to determine if you can pay back your debts. In many cases, your Beacon Score will be the determinant factor. The limit granted will vary according to your credit score and your declared income. It is very rare they would request for proof of income and assets as they can validate your employment with your Credit Bureau.

Negotiation

There is not much room for negotiation on credit cards. Grantors will increase your limit from time to time and will offer their clients to pay an additional amount every year to qualify for a better rate or to get reward programs.

As you can conclude, the result of your credit cards usage is up to you. You can crumble under high interest rate or you can use it to build your credit history and benefit from a lot of goodies. In the end, it’s only a matter of self control.

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[…] or not? The easiest way to improve your credit score is by using your credit cards every month. Credit cards companies always report to credit reporting agencies such as Equifax or Transunion. This monthly […]