I dont really get the whole concept of a credit card.

Question

how does the whole credit card thing work, how do you use it?

Answer 1

You apply for a card. They look at your credit rating and decide whether to give it to you or not, and at what percentage rate to charge you.  Then you get it in the mail, you call a number to activate it.  Then you go buy something with it.  then if you pay it within the time they have on the contract, usually 25 days, then you don't pay any interest on the amount you owe.  But if you don't pay it in full in that time, then you pay interest.  They have a certain date that you have to make a payment. If you don't make a payment by that time, then they charge you another fee like $39 or whatever their fee is.  Which this adds onto the current balance you owe and they start charging you interest on it also.  They also give you a set limit of how much you can spend on the card. If you go over the limit, they charge another fee. Credit cards are a good tool, but can be misused.  It is too easy to have that ready money available and to say, I will pay it later.   The best to do is use it and pay it off as soon as you can, and keep your balance low. Or better yet, dont use it at all.  If you do get to your limit, and go over, make sure you pay all the fees, and alot extra to get you below your limit.  Also, when paying your monthly, pay the amount designated plus the amount of interest you would be charged, that way your balance stays down.  

Answer 2

Well, a credit card is a little plastic card that you can use to pay for things when you do not want to use debit or cash. You can activate one at a bank of your choice. What you do, is when you are paying for something at a store, you give your card to the cashier. The cashier puts it through, and then gives you a receipt in which you sign your signature. The credit machine they have at the cash register takes your card number, the name and address of the store you purchased your item(s) from, and the price for which you payed for it. Then, usually every month you get a bill in the mail for all the purchases you bought with your credit card. Then you just go the bank, and pay the balance! There is always a minimum paying amount, but it is not very much, seeing as banks want to make money by charging you interest. Hope this helps!

Answer 3

Credit card companies give you a card and let you buy things with it.  They have assessed the risk of giving you that card.  The risk they bear is the risk of you buying things an then you not paying for them.  

Its kind of like this:

If a credit card company trusts you: they give you a card.

you go to the store pick something out.

bring it to the register and swipe the card.  

the credit card company pays the store for your merchandise.

The credit card company paid on the hope that you will now pay them back for the merchandise you bought.  

There are a lot of answers on how you 'should' use a credit card.  I really think you should only use a card to buy something if you could've bought it with cash on that same day.  ( you left the cash at home, you have it in the bank, it was a big purchase and you didn't want to carry that amount of cash on you etc.)

Answer 4

A credit card is a device that gives approved applicants access to an instant loan. You can borrow as much as you want up to a limit and pay it back over time. The interest rates are higher than traditional loans that you get at a bank because most credit cards require no collateral to get approved.

People like credit cards because if they get stolen, they can be canceled and replaced, unlike cash. People also like credit cards because they can buy something they want now, and not pay for it all at one time. Many credit cards also have agreements with other companies, and give the credit card holder points that can be used to buy things like airline tickets, gift cards, and other stuff.

Answer 5

Its a magically plastic card that you give to businesses to swipe instead of handing them cash.  

There is a things called credit card bills but a lot of people just ignore these and it usually works out.

Answer 6

It's like your electric bill. The more you use electricity the more it costs per month. With a credit card the more you use it the more money goes on that bill so you dont have to pay in cash

Answer 7

A credit card is an instant loan in your pocket

you use it to buy stuff, they send you a bill at the end of the month, you pay it, ...everybody is happy.

The merchant who Honor's the card pay a percentage fee to the card company who pay the merchant.

Where the problem comes, is if you don't pay in full at the end of the month.

Heavy interest charges kick in, and every purchase made is charged interest from the day of purchase until the total account is paid in full.

Credit is great, but can be detrimental to your financial health if abused.

Answer 8

a credit card allows you to buy now pay later.  The company that issues you the card is enabling you the option to pay them back in full or make small monthly payments back towards the card( company).

  If your not understanding this concept it would be better to stick with dealing with cash.  In case you buy something and you can't afford to make your minimal payment at least your not s******g up your credit if you use cash.  

Answer 9

Others have talked about what a credit card is -- basically a revolving line of credit that you should pay off every month to avoid paying interest.  They're basically good for convenience and rewards.

Let me detail the best way to use credit cards.

1. Find the rewards card(s) that will pay you the most for your normal expenses (I'll explain how in a second)

2. Funnel most/all of your normal expenses through your rewards card(s) without max'ing them out

3. Always pay your monthly balance off in full and on time.

That way you'll:

1. Build your credit quickly (based on responsible utilization of your lines of credit)

2. Avoid interest and fees

3. Earn great rewards

You can use this rewards calculator to find which rewards card (or combination of cards) will pay you the most in rewards for your normal expenses:

http://www.creditcardtuneup.com/

In addition to getting (and responsibly using) a couple credit cards, there are some other things you can do to build your credit, but first let me explain what makes up your FICO credit score.

FICO scores range from 300 to 850. So there's really 550 points possible. Here's how much of those 550 points are at stake for various kinds of credit usage behavior:

- About 35 percent is ‘payment history’ - Paying your credit cards on time and making at least minimum balance payments (though I recommend always paying them off in full each month to avoid interest)

- About 30 percent is ‘amounts owed’ - How much of your available credit are you using? The more of your available credit you have tapped, the less of this you get. By paying off your cards in full every month and not carrying a balance, you've done most of what you should have to do to earn these points. If you're really interested in "polishing" your FICO score (e.g. just before getting a mortgage), you may choose to pay your cards early or utilize them less. Personally, I just have about 7 credit cards, but only use a fraction of the available credit on them. That's why I'd recommend getting at least a couple credit cards.

- About 15 percent of your FICO score is ‘length of credit history’ -- You'll start building this as soon as you get your first credit cards or loans. Also, don't close your credit card accounts. Keep them open for the length of credit history.

- About 10 percent of your score is ‘new credit’ -- i.e. Applying for new lines of credit (cards or loans) chips away at these points. Each time you apply for a credit card your FICO score takes like a 10 point hit, but the impact goes away gradually and is totally gone 12 months after you applied for the card.

- The last 10 percent of your score is ‘types of credit’ -- You can can earn more of those points by having credit cards plus other forms of credit such as department store cards, vehicle loans, a mortgage, overdraft protection on your checking account, etc.

As you can see, doing those other things besides credit cards only matters for about 35-45 points out of your total 550 possible FICO points.

It's pretty easy to get a couple department store credit cards, so you should definitely do that to build your credit. Overdraft protection on your checking account is easy (if your bank offers it). I wouldn't go out of your way to get loans that you don't need, but having them and paying them responsibly helps your FICO score a little.

Answer 10

1)  Apply for credit card and get accepted.

2) Receive plastic credit card in mail and activate (follow instructions).

3)  Find something you want to buy on credit (either in store or online that accepts the card).

4) Buy item and hand credit card to clerk or enter appropriate information online.

5)  The seller will then verify that your remaining credit line (the difference between the maximum you can buy on credit and your current balance) is sufficient to purchase the item.  If it is, they will ring up the purchase much as if you paid cash, except you will have to sign a receipt, and give you the items.

6) Go home and wait for the credit card company to send you a bill.

7) Pay the bill.  If you pay the entire bill, you will not get charged a finance charge (interest).  If you don't pay the bill, you will get charged interest and get a bill the next month.

Answer 11

A credit card lets you buy things you don't have money for.

Then later in the month, the credit card company sends you a bill, and you'd better have the money to pay for it then.

If you don't have enough money, you make a minimum payment, and then every month they'll charge you interest on the amount you still owe, so by the time you finish paying for what you've bought, you have paid the credit card company a lot more than the item would have cost if you'd just paid cash for it in the first place.

If you can make a statement like "I don't really get the whole concept", then a credit card probably is NOT the right choice for you.