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Getting and keeping good credit
Mastering the marketplace includes questions about if, what, and when to buy. Having good credit reflects how we choose to pay for our purchases - cash, check, credit card, debit card, or other stored value card. Using payment methods to our advantage involves making deliberate, planned choices. Even among payment cards, there are many choices: Some cards act like cash or checks; others act like loans. Still others are "hybrids," a combination of both debit and credit, and always are attached to terms and conditions, fees, and/or rates of interest - sometimes extremely high rates of interest. Most people know the major difference between types of payment cards.We use one or more of these cards to make routine purchases in person, over the phone or the Internet, to give as gifts, and make prepaid phone calls. Not all types of payment cards, however, build good credit. The following brief review describes only the basics, and there are endless variations and exceptions in all of the following categories. Making certain you know exactly what type of card(s) you are using and their specific terms and conditions means reading the fine print in your contract and the bills you receive every month.
Credit card issuers make money from you and also from the merchants who accept their cards for payment of goods and services.When markets change, or when they perceive a dip in your credit status, they can and do change the rules on you, sometimes without your knowledge and nearly always without your permission. Later we discuss how credit benefits you and some new reasons why having good credit is so important in today's uncertain consumer environment. After you become familiar with this article, maybe you will be motivated to take a class on credit management. If you do, you will probably never again look at the cards in your wallet in quite the same way.
Credit Cards
Credit card approval is really "loan approval" by a credit provider to you, the "borrower." You may make purchases using the card up to a pre-established credit (loan) limit at a pre-determined rate of interest. The amount of credit is "revolving," which simply means as you know, that you are required to pay a proportion of the bill by a given due date, or you may pay off the entire balance owed and spend/borrow again. There are many terms and conditions of the credit card or cards you may be using, and you need to know all of these details. The point to remember, however, is that each time you swipe that credit card you are using borrowed money, not extra cash. Some people even tape this reminder to their credit card, so they will not forget this crucial fact in the rush of making unintended purchases.
Charge Cards
Certain American Express cards, Diners Club, and some merchants issue charge cards that are similar to credit cards. They act like shortterm loans, and cardholders must repay all charges in full each month. No part of the balance, unlike revolving credit, may be carried forward. The two types of cards are often interchangeably called "charge cards" to describe any card that can be used as payment or for credit. In return for an annual fee, most people use charge cards for convenience and to keep track of their expenses.
Debit Cards
Debit cards immediately signal the withdrawal of funds from an account into which you have previously deposited money. When you pay with a debit card, the store clerk checks electronically to make sure you have enough funds in your account.Merchants prefer that you use debit cards instead of credit cards because the fees they pay to the card issuer are less for debit card payments than for credit transactions. A debit card does not accumulate and push up the amount of debt that you owe because you use only the amount you have on deposit.
Hybrid Cards
A hybrid card is a debit card with "overdraft charging privileges." If your bank account balance is less than the item you wish to purchase, you will not be denied by the card issuer. You will be able to debit your account directly and to charge the balance, or even your next purchase, up to your credit limit, of course. Be sure to understand any fees associated with overdraft charging privileges before you use this service.
Stored Value Cards
A stored value card is a catchall phrase used to describe a whole family of payment cards. They all use magnetic strip technology to store information about funds that have been prepaid. Payroll cards, government benefit cards, prepaid debit cards, gift cards, and telephone cards are examples of stored value cards. There are two main types of stored value cards in the marketplace: single purpose cards such as prepaid gift and telephone cards, and multipurpose stored value cards, an alternative to checking accounts, for people who usually do not deal with banks. Multipurpose stored value cards can be used to make debit transactions at a wide variety of retail locations. They can receive and store new deposits, like a bank account, and cardholders can use them for withdrawing cash from ATMs. Some multipurpose cards are branded by Visa or MasterCard and can be used wherever those brands are accepted.