Credit cards often spark a love-hate relationship among consumers. Speak to most people on the street, and they'll tell you that they see more of the hate side of the relationship than anything else. So why are people so grateful yet terrified to own a credit card? The simple fact is that credit cards can be a very tricky thing to keep in order—not because they are difficult to use but because they all have different components that require intense scrutiny to figure out. The following details some of the ways to become a smarter consumer when owning a credit card.
How to Use Them to Boost Your Credit Score
One of the best benefits of owning a credit card is that they allow the younger generation to begin establishing their credit score. As for older adults, it can be a way to fix or boost their current credit rating. Credit scores are a vital necessity to be able to get that car or home that you've always wanted without having to pay a high premium. You can begin to boost your score by paying off a bit more than just the minimum every month. Slowly but surely, those on-time and high-paid amounts will have a positive effect on your credit score.
How Companies Make Money on Them
The way credit card companies make money is, essentially, a bet on your ability to pay back your loan along with additional fees. These giant corporations understand that not everyone will be responsible enough to pay their credit card off each month and, therefore, charge an enormous amount of interest. They also expect to lose valuation on their company, but don’t be fooled. They have that covered as well. Even under the new CECL model, institutions are looking 1-30 years in the future.
How to Obtain the Best Credit Cards
Often, the best cards are reserved for long-term members or those with an exceptional credit score. But what if you are neither? You've done your research and realized that beginner credit cards often come with hefty interest fees. One of the best methods of obtaining better cards is to simply place a security deposit down. This method was created specifically for those with damaged credit or none at all. Keep in mind that if you begin to fall behind on your payments, they will use the funds from your security deposit to pay off the balance.
Credit cards can be a very intimidating thing for most people. However, by being proactive in not only how you choose your credit card, but which one you get, you can begin to lay down the pillars of a strong financial situation for yourself.
Looking for more financial advice? We recommend reading this article next!