Getting your first credit card is almost a rite of passage into adulthood when you live in a first world country. The danger of credit cards lies in the widespread lack of knowledge about how to properly use them.
There’s also a widespread lack of knowledge concerning the many different types of credit cards available to individuals. Try to absorb some new information, and check out this brief overview of a few things you should know before getting a credit card.
Different types of credit cards
There are several different types of credit cards, and they can be used in many different ways. Private label credit cards are typically issued by a retail organization, and they can only be used to make purchases at a certain store.
General purpose credit cards are what most people traditionally think of when they think of a credit card. They can be used to make purchases from anywhere, and most general purpose cards are unsecured.
Unsecured credit cards extend cardholders a line of credit based on their credit history. Secured credit cards are backed by funds the cardholder deposits into a default account to be used in the case of nonpayment of debt. These cards are typically more useful for individuals with a troublesome financial past.
Understand the terms of your card
Before you ever sign the first piece of paper, you need to fully understand the terms of your card. Interest rates can be the worst trap for credit card applicants, so make sure you know exactly what to expect in interest charges to your account.
Interest rates can go as high as 30 percent, and you can be lucky enough to find a good deal with a zero percent interest rate. Don’t let yourself be overcharged, and shop around for the perfect deal.
Understand that your contract is binding
When you sign a contract with a credit card company, the contract is binding. If you default on your payments, you could face legal action. You will also see a negative impact on your credit rating if you do not uphold your side of the contract.
You aren’t required to pay in full
You aren’t required to pay off your credit card debt at the end of each monthly cycle, but remember that what you don’t pay will be included when interest charges are figured up for the month. Paying your credit card debt in full each month will look better on your credit history, but it is not a requirement for continued services.
You have legal rights
The Truth in Lending Act requires all credit card companies to fully explain the terms and conditions of their contract in layman’s terms. The Fair Credit Billing Act gives you the legal right to dispute and rectify financial errors that may arise on your credit card.