Credit Card Basics You Should Know

Updated: Oct 11, 2022

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Why people use credit cards

In the basics of western countries, a credit card is the preferred payment method. In the US, around 40% of consumers prefer using credit cards for their purchases. But why are they so popular?

Reward systems

First of all, a lot of consumers try them out and remain using them due to so many rewards programs that go along with them. To most people, the most crucial feature of credit cards is the reward system.

This is what they first look for, and only after can they focus on charges, interest rates, and other features. Rewards can come in the form of gift cards, rebates, discounts, airline travel, cash back, and so on.

When using a credit card properly, these rewards can help you get back a lot of money. The goal of the companies that issue cards is to make people use them for as long as possible. So far, the rewards are the biggest reason why so many people use credit cards.

Don’t get stuck on big upfront offers. Most credit cards with big starting bonuses are usually bad for long-term use, and when the promo period expires, you will be stuck with poor conditions.

Variety of options

The second reason why more and more people are using credit cards is because of the vast range of different ones at their disposal. First of all, there are many types of different cards for consumers to choose from:

All of these cards are different in their own way and designed for certain lifestyles and spending habits. This means that consumers can find a card that suits them and helps them get basics benefits while not risking getting into financial issues.

Improved security

Paying for purchases with a credit card helps avoid fraud. When someone steals your debit card and uses it, they instantly draw money from the card. At the same time, if you scheduled payments online and mailed checks, they might bounce, which could lead to insufficient funds and fees. This is something your creditors will notice.

It doesn’t matter if this is all someone else’s fault. All of these events will trigger actions that will lead to lowered credit scores. Reversing these phony transactions might take a lot of time, and getting the money back to the account is sometimes impossible. All of this can cause a lot of complications people want to avoid.

At the same time, when someone fraudulently uses a credit card, you won’t lose any money from your account, that’s because of card basics features. The only thing a cardholder needs to do is inform the credit card company of what happened and skip paying for those transactions he or she didn’t make. For the rest, it is up to the credit company to fix the issue.

Can help in case of emergency

In case of a REAL emergency, credit cards can be beneficial. You always need an emergency fund because you never know what could happen. However, not many people have $2000 in cash to pay for their car repair, buy a plane ticket, or pay for medical treatment.

In this kind of scenario, it’s better even to pay interest on your balance rather than having to ask your friends to borrow money or ask your boss to give you your wages in advance. A credit card will always have available credit if you used it correctly. You will have money available in case of an emergency.

The same principle applies to credit cards used to buy clothes, gadgets, and other items. If you find a good deal that is available only for a couple of days and you currently don’t have the money, you can use your card to buy that product and pay it off later.

They are convenient

Nobody likes carrying large amounts of cash with them. First of all, it’s quite impractical to have so much money with you. It takes up a lot of your space, and you need a big wallet. Additionally, if you lose your wallet, chances are all of your money will be gone forever.

On the other hand, credit cards are tiny, easy to carry, and convenient. A single credit card can fit into any wallet and be carried easily. In case someone steals your credit card, they won’t be able to use it as they don’t have all the information necessary.

At the same time, if you lose a card, you can simply contact the issuer and have it canceled. This means you won’t lose any money from your credit line. In the end, paying with credit cards is simple, it only takes a few seconds, and you don’t have to wait for change or count the money that you’re giving.

How Many Do I Need?

In terms of practicality, finding a single credit card that fits your basics needs can be enough. However, this is not always the best way to go. First of all, not all cards can be used everywhere. For example, merchandise cards are usually limited to certain store(s) and aren’t accepted anywhere else.

Another important factor to consider, of course, is building a credit score. You can do this with a single credit card but in the right circumstances having multiple cards will help you achieve a better credit score and in less time.

Their major considerations are the benefits. With several cards and a bit of strategy, you can ensure that you always have basics rewards available on a single given card. This way, you will be able to make the most out of the benefits each one of them gives you.

Don’t apply for multiple credit cards at the same time. Credit card issuers that check your credit report during the application process will be able to see that you have multiple inquiries. This will suggest to them that you’re desperate for credit and they will see you as a risky candidate.

Basics Of Choosing Your First Credit Card

All of this information about credit cards and different sizes and shapes they come in can be a little too much to process. However, when getting the first card, there is a simple general rule of thumb that can help choose the right one – get a card that is consistent with your basics personal needs.

Don’t listen to your friends and family when choosing a card. What works for them might not work for you. If you are in college, get a student card, simple as that. If you travel a lot look for credit cards that give a lot of travel rewards. You like shopping a lot at your favorite store, see if they offer their own shopping card, simple as that.

Secured and unsecured credit cards

When looking at shopping credit cards or any other type of credit card, you will often see that they are categorized as secured or unsecured. But what does this mean? Not all cards are the same, and you need to understand the differences between these two terms.

Secured credit card basics

Secured credit cards are backed by a cash deposit that needs to be made by the card owner. This cash deposit serves as collateral for the spending you do through your credit card. This is why credit card issuers refer to these cards as “secure.”

The spending limit on a secured credit card is set by the deposit that you put down. In case the cardholder wants to increase his or her credit limit, that person will have to put an even larger deposit.

However, when maintaining a good payment history, a lot of lenders are willing to increase the spending limit without requiring an additional deposit. At the moment, there are less secured card offers on the market compared to unsecured cards.

RELATED: Secured Cards Explained

Unsecured credit card basics

On the other hand, unsecured credit cards don’t have any collateral attached to the spending limit. When a card doesn’t require any collateral deposit, then it’s referred to as “unsecured.” With unsecured cards, the spending limit is determined by the lender depending on how much overall risk the cardholder presents to them.

The card issuer determines the limit by looking at basics factors such as payment history, income, credit report, and credit score. If a person is unable to pay off their card, the issuer will put collection actions into motion. That could include sending a debt collection agency, reporting the balance to the credit bureau, legally taking a cut of your pay, or even using you.

Bottom Line

When opting for a credit card be realistic, and analyze card basics.  In case you have poor credit chances are you won’t get the best deal possible. However, don’t let this discourage you as you can work your way up the credit chain.

Consider getting a credit card that doesn’t require a credit check. One of the better options for this is shopping cards. Luckily for you, we’ve written an extensive post on shopping cards explained so if you want, check it out to learn more about them.


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