"I can't wait to get a credit card. It will be cool to buy whatever I want, whenever I want." Look out - that kind of thinking will get you into trouble! A lot of people think that credit cards are "magic money." But a credit card is just a financial tool that lets you borrow money, which you have to pay back.
It's important to know what you're doing with a credit card. If you use it wisely, you'll build
good credit. See other
good reasons to have a credit card, too.
How Credit Cards Work
When you use a credit card, you are borrowing from the credit card company to pay for your purchase. The company will send you a bill once a month showing everything you charged.
On that bill, the credit card company lets you choose whether to pay the full amount back at once, or just pay part and carry a balance over to the next month. If you do that, you will have to pay interest on that amount next month. Your credit card will have an
annual interest rate, such as 15%.
Credit Card Pitfalls
The fact that most credit cards let you roll over your balance from month to month can be convenient, but it's not in your best interest. Why:
Paying interest makes everything you buy more expensive. If your credit card has a 19% interest rate, then you are paying 19% MORE for everything.
Paying only the minimum payment can dangerous. Most credit cards require only a tiny "minimum payment" each month, about 2% of what you owe. If you only make the minimum payment, it will take YEARS to pay your balance off.
You won't have to pay any interest... You won't build up a big debt... AND You'll build a good credit record.
When you're ready to get a credit card, don't just pick the first one that sends you an offer. Here's how to
compare them, and some alternatives to credit cards.
LINK: For more valuable information on getting credit, credit reports, credit scams, identity theft, and credit FAQs, see the Federal Trade Commission's website
Getting Credit (www.ftc.gov/bcp/conline/edcams/gettingcredit/)
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