With so many credit card choices available in today's economy, selecting the right credit card can be confusing. It is an important decision that can save you money and effect your credit rating. It does pay to shop around for the lowest interest rates and fees. Also consider your budget limitations and what your needs are before signing up for the first Visa or MasterCard that comes in the mail. Some credit cards come with bonus points called rewards.
Credit cards are said to run the world's economy economy. It is true we do need a credit card to rent a car or buy a book online but how many do we really need? The consensus among most financial advisors is that one or two credit cards are enough.
Types of Credit Cards
There are Three main types of credit cards available. A fourth, called the Smart Card is in the new stage and is available world wide. Visa and MasterCard also offer a charity card where a percentage goes to a particular charity. This is often for tax purposes as well as philanthropic.
The three main types of credit cards are:
1. Bank Cards
2. Charge Cards
2. Store Cards
Bank Cards
Banks Cards are your standard credit cards such as MasterCard, Visa and Discover.You may pay in full each month or choose to make a partial payment based on the outstanding balance. If you make a partial payment, you will be charged interest (a "finance charge") on the portion of the balance you do not pay. Department stores, gas and oil companies, and banks typically issue credit cards based on a revolving credit plan. Revolving credit is popular today as even people with a questionable credit rating can obtain a standard bank credit card.
Charge Cards
American Express and Diners Club are the primary examples of a low interest charge card. These are used in the same manner as the traditional bank credit cards with one major difference; the balance must be paid in full each month. This type of card is quite often offered to the consumer who has had a bad credit history. It is important that the balance be paid off on time or a large debt could quickly occur. Charge cards are often given to company employees to cover business expenses such as travel.
Store Cards
Many department stores and online stores issue their own particular charge
card. Sears and JC Penny are among the most widely known. The store card may
only be used in the store in which it was issued. This type of card is an
excellent way for a beginner to build good credit points if used prudently.
The card holder will also be offered discounts on purchased merchandise. However,
the interest rates on store cards are usually extremely high. These are almost
always revolving charge accounts. A revolving charge account is basically
compound interest or interest paid on top of interest. It is interest which
is figured not only on the original principal, but also the built up interest
of past periods. Sometimes there is a prepayment penalty if the outstanding
balance is paid off early.
A credit card is a relatively easy thing to obtain. College students who have no jobs and very little knowledge of APR's and interest rates find a credit card in their campus mail box. Even newborn infants are issued credit cards in the mail. Prepaid credit cards are available for immigrants and people with horrible credit ratings. Usually these types of credit cards also carry extremely high interest rates well into the twenties. There are many reliable resources online to look for the lowest interest rates such as www.kiplinger.com
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