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Credit Cards Can Help You Get Out Of Debt
Your credit rating / credit score is based upon how you have
dealt with credit previously. If you have always paid the full
amount owing and never missed a payment then your credit score
will be high. If you miss payments, been late paying, not paid in
full each month then your credit score will be lower. If you're
trying to re-build your credit or if you're young and just
starting out, pay close attention the next time you receive a new
card offer in the mail. When you're trying to build a positive
credit history for yourself, using the right credit card makes
sense. Making small purchases and then making your payments on
time each month is a simple, reliable way to build an outstanding
credit report.
What to Look For On a Credit Card Application
If the credit card application you receive appears to offer a
low monthly interest rate, don't make a decision until you turn
it over and closely examine the Disclosure Box. In it you'll find
a more important measure of credit terms - the Annual Percentage
Rate, or APR. By federal law, the Disclosure Box will also tell
you whether or not the card has what is called a grace period - a
number of days, usually 25, until your purchase starts to accrue
finance charges. If a card has a reasonable grace period and you
pay off your balance at the end of each billing cycle, you won't
have to pay finance charges. It isn't difficult to find credit
cards that offer these grace periods, so if the Disclosure Box
doesn't declare one then throw the application in the trash and
look for a better offer.
If you don't have any credit history at all, a credit card
company won't want to give you a very high credit limit, but
that's probably best when you're just starting out. You don't
want to be tempted to go into serious debt with your very first
credit card.
Calculate Your Monthly Finance Charges
Ideally you want to pay off your balance each month to avoid
paying any finance charges, but when that isn't possible it's
important to know the actual cost of the items you purchase. The
annual percentage rate, divided by 12 months, gives you the
periodic rate that will be applied to your outstanding balance
each month. You can estimate what your monthly finance charge
will be by multiplying the periodic rate times the outstanding
balance. It may sound complicated at first, but taking the time
to learn this simple equation can make a big difference in how
you use your credit card.
When you're able to see how much you actually spend on an item
that you don't pay off at the end of the month, it might help you
to resist the temptation to over-use your card. An item that you
want to buy might be on sale at the time you purchase it, but if
you don't pay off your balance at the end of the month then those
finance charges can dramatically increase the actual amount
you'll end up paying.
Use Your Credit Card as a Tool
Credit cards are only one of the tools available to help you
build a positive credit history. Making on-time payments for
other forms of credit, such as rent and utilities, are also
important. Depending on your situation, within 1-2 years your
credit rating will be improved enough that you no longer need to
use your card for new purchases to maintain your good credit. Use
these tools wisely, and they'll help build your financial
future!
Paul Forcey is the Webmaster for Agony Aunt Debt Advice.
MORE RESOURCES:
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