Pennywise
Credit Cards: Pros And Cons
by: Sahil | last updated: November 04, 2009
Category: Standard Credit Cards | Tags: Credit cards pros and cons, credit card advantages, credit cards
Category: Standard Credit Cards | Tags: Credit cards pros and cons, credit card advantages, credit cards
Credit cards do come with some responsibility and need to be handled with due diligence in order to ensure a healthy financial future. There are always two sides to a coin and there are advantages as well as disadvantages of using a credit card. These can come in handy during emergencies but are also the reason for overspending and personal debt. In order to make sure that credit cards have a positive impact on your finances it is important to keep them in good standing.
Of course the benefits of having a credit card definitely outweigh the other alternative and prove useful during emergencies and convenient during everyday transactions. Obtaining a credit card during the college years and wisely using it will affect that persons credit history and score in a positive manner. It will ensure that an individual has some credit history when that person graduates and starts scouring for a job.
On the other hand, having a credit card and using it unwisely by overspending and making late payments will hamper the financial goals of a person. This will have an immense negative impact on a persons credit history since even a couple of missed payments are recorded on the credit report. These records become a touchstone for lenders who may increase the interest rates due to the missed or late payments or even deny a loan or credit based on such facts.
Credit cards are the financial instruments that make or break a persons credit score and history. Even an unused credit card lying around does not mean that you will receive a good rating. Unused open credit accounts usually have a negative impact on your credit report. On the other hand, maintaining a balance (money owed) of 60-70 % of the total credit limit and making timely payments will increase your credit score. Thus, like an engine, these resources of credit need to be kept up and running in order to have a positive impact on your credit report.
The most common type of credit that is offered by credit card companies is revolving credit. In these types of accounts the cardholder is allowed to carry a balance on which an interest is charged if that individual makes a minimum payment. This minimum payment can be from 2% to 10% depending on the country and the credit card company. Of course it is important to pay off the balance in full so that you will enjoy an interest free line of credit.
If a person is paying interest on a regular basis then the benefits of the credit card start disintegrating and a person ends up paying 20-25% interest. This is actually a loss to the credit card holder and should be avoided at any cost. Moreover some credit card companies charge an overlimit fees if the card goes over the predetermined limit. This fee can be anywhere from $20 to $25 (U.S). This situation can be avoided by calling the credit card company and placing a cap on the limit so that it becomes inactive as soon as it reaches the limit.
There are many other finer points and laws that govern the working of credit card companies around the world and in the United States. The most important factors that affect your credit ratings, scores, and reports are credit card payments. Ensuring that you make timely payments and use at least some of the credit that is made available will definitely help in improving your credit history and credit reports.
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