The plastic power is all too common now days. We almost live in a cashless society paying for everything either with a debit card or in most cases a credit card. Credit cards have many conveniences, almost too many and some drawbacks. Before you sign up for another card, let's take a look at the pluses and minuses to see if the rewards outweigh the risks. Credit cards are, first off, a great way for everyone to build credit. Establishing credit will secure a high FICO score or credit rating. This credit rating is crucial to maintain. Everything is being tied back to your credit score so it is important to start as soon as possible. Building credit will allow you to make purchases for the lowest interest rate possible, along with many other advantages. What most people may not realize is that every time you use a credit card you are taking out a small loan. Getting loans from a bank or other financial institutions take time, but a credit card is instantaneous and can be used anywhere around the globe. For this convenience, they charge a 20% or so interest rate. Your new card may start with a low interest rate but it will jump up much higher. The ease of buying with credit cards gives a false impression that that money is ours. The reality of credit cards is that you are spending someone else's money. They will charge you a high return for using that money too. Imagine you making 20% a year on your investments. Everyone would jump on board that program but instead we are on the other side of the fence, paying someone 20% interest instead. If you pay off the card every month, you do not have to worry about paying interest but most people just pay somewhere between the minimum and the entire balance every month. Some people have more than one credit card. Having more than one card will not build your FICO score faster; it will at some point bring it down. You only need one card to start establishing credit, having three or five only brings that number down and works against you. Having several cards will raise your possible debt and your credit score will reflect it AS debt. Many retailers offer credit cards to use in their store and perhaps elsewhere. Anytime you make a large purchase or open up a line of credit, they mail you a credit card to your house within weeks. These cards usually have some open credit available to make more purchases. This is only a trap to buy more and open up more accounts. The reason most people have a credit card is because they do not have the money to pay for something. So opening more and more cards only adds to that problem. A word of advice is never open up a credit card account no matter how good of a deal you think it is. It is only a good deal for the retailer; if it were not a good deal for them then they would not offer credit cards. It would certainly be a bad business decision. Credit cards give us a false sense of how much money we really have. If you pay off all of you credit cards every month that is one thing but many people have cards maxed out. If you are using a credit card, to begin with then assume you cannot afford it. Remember you are taking out a loan and spending money you have not made yet. Beware of the plastic power because it is easy to forget how much you have spent, until the bank starts calling you every month. |
